I

THERE is an unmistakable drift toward government ownership of railways in the United States. This tendency is probably most apparent to those closely identified with railway affairs; but it is also evident to many who are interested in the railway business chiefly, or only, as observers and students of economic, industrial, and political problems.

In the first place, there has been for some years a rather unsteady but certain increase in the number of socialists in the country; and those who thus favor public ownership and management of all of the means of both production and distribution must be counted in with those others who favor public acquisition of the principal means of distribution. There has also been an increase in the number of those who advocate public ownership of all public utilities, of which steam railways are the largest. Finally, there has been a mighty growth in the number who favor very stringent regulation of railways, and who have succeeded in getting this policy adopted. The last-named class, which is much the largest, may finally turn the scale for public ownership. For its members now expect much from regulation-lower rates, better service, smaller railway dividends, complete elimination of traffic discriminations, shorter hours and higher wages for

labor, higher railway taxes, fewer accidents, and all the rest.

There is, however, a limit to the amount along these lines that any railway policy, whether that of unregulated private management, regulated private management, or public management, can accomplish. It is to be feared that public regulation, however submissive to it the railways may be, will accomplish less than many expect; and that, disappointed, these will join the ranks of those who believe in government ownership.

Furthermore, the opposition to public ownership from the men who, in past years, have had the strongest incentive to oppose it, namely, the officers and stockholders of railways, may decrease-nay, is decreasing-just when the tendency toward it becomes strongest. Whether rightly or wrongly, many railway officers and stockholders feel that unless present tendencies of regu lation are checked, the time will soon come when, regardless of what their attitude as citizens may or should be, they will have no good reason, as railway officers and stockholders, for opposing public ownership.

The main thing about any employment that makes it attractive to strong men is the opportunity, under conditions affording much freedom of action, to exercise their best initiative, put forth their best energy, and thereby achieve the best results of which they

are capable; and many railway officers feel that the ever-increasing restrictions that regulation is putting on railway management are depriving them of this opportunity. The public has small conception how the hundreds of federal and state laws regulating railways, passed in recent years, and the innumerable orders that are constantly being issued by the Interstate Commerce Commission and the forty-two state commissions, tie the hands of railway officers. Doubtless much of the regulation is needed; perhaps all of it is well intended: but the public has unfortunately tried to adopt a policy of regulation that will prevent railway officers from doing anything that they ought not to do, and has overlooked the fact that to hedge men about with restrictions of this sort may, at the same time, so narrow their freedom of action as to make it impossible for them to do many things that they ought to do.

Those who have bought railway stock as distinguished from those who have really loaned their money to the roads by buying their bonds have done so in order that, while incurring the risk of business loss if the venture did not pay, they might get a business profit if it did pay; and the tendency of regulation to limit and reduce railway profits is making many investors wonder if they would not be better off financially if government ownership should be adopted. With an outstanding capitalization of less than $63,000 a mile, or lower than that of the railways of any other first-rate country in the world, the railways of the United States have never been able in any year to pay as much as 4 per cent on both their bonds and their stock. In 1910 their average interest was 3.79 per cent and their average dividends 3.64 per cent. It is in the face of this fact that the state and

national governments are pursuing a policy under which net earnings are declining instead of increasing. In the calendar year 1907, net earnings per mile were $3,359; in 1908, following the panic of 1907, they were $2,869; in 1909, $3,441; in 1910, $3,344; in 1911, $3,152. Now, railway stockholders know that no government has ever, in acquiring railways, paid an improperly low price for them; they feel confident that the government of the United States will not be the first to set the example of railway confiscation; and if they could get their money out of railways they could invest it elsewhere with more chance of large profits.

In these circumstances, the time may soon come when the only persons who will oppose public ownership will be those who will do so solely from a disinterested belief that it would be a bad thing for the republic, and we all know that disinterested zeal is seldom active, strenuous, and effective.

A change to government ownership in the United States, whether the results were bad or good, would be a revolution of stupendous proportions. The mileage of the railways of this country, amounting to more than 240,000 miles, is greater than the combined mileages of all the railways now owned by governments in the world. The net capitalization of our railways is about fourteen and a half billions of dollars; they certainly could not be acquired for less than this; the purchase price, very likely, would be nearer twenty billions; and all this immense sum would be added to the national debt. The 1,700,000 employees would all become government employees, with what political consequences no one can foretell. We should arouse ourselves to a clear recognition of present tendencies, cease drifting, and determine by investigation, thought, and discussion whether government ownership

will or will not be the best policy for us as a people; and then, having decided this, we should deliberately and carefully either prepare for the change, or work out and adopt a railway policy that will steer us clear of it.

II

The first question to be squarely faced and settled is: Is government ownership desirable or not? To discuss that question adequately within the limits of a magazine article would be impossible. Some of the most important points may, however, be touched

upon.

The largest state-owned railway system in the world is that of Germany, and its results are those most frequently cited by advocates of government ownership as arguments for that policy. It is said that the German state system yields large profits to the government, that its rates are reasonable and nondiscriminatory, and that its service is good. There is no question that, on the whole, the German state lines are quite well-managed. But there is one vital difference between Germany and the United States that must be taken into account. Germany is a monarchy; the United States is a democracy; and Charles Francis Adams, long chairman of the Railroad Commission of Massachusetts, thirty years ago forcibly expressed the reasons why the results gained by public management of railways under one form of government cannot, without much qualification and many reservations, be used as an argument for the adoption of the same policy in a country having a different form of government.

'In applying results drawn from the experience of one country to problems which present themselves in another,' said Mr. Adams, 'the difference of social and political habit and educa

tion should ever be borne in mind. Because in the countries of continental Europe the state can and does hold close relations, amounting even to ownership, with the railroads, it does not follow that the same course could be successfully pursued in England or in America. The former nations are by political habit administrative, the latter are parliamentary. In other words, France and Germany are essentially executive in their governmental systems, while England and America are legislative. Now, the executive may design, construct, or operate a railroad; the legislative never can. A country, therefore, with a weak or unstable executive, or a crude and imperfect civil service, should accept with caution results achieved under a government of bureaus.'

As W. M. Acworth, the English railway economist, has said, 'Prussia is Prussia, with a government in effect autocratic, with a civil service with a strong esprit de corps, and permeated with old traditions, leading them to regard themselves as servants of the king, rather than as candidates for popular favor. I am inclined to think,' Mr. Acworth adds, 'that the effect of the evidence is that the further a government departs from autocracy and develops in the direction of democracy the less successful it is likely to be in the direct management of railroads.'

Most of the employees of the German lines are ex-soldiers who not only have the soldier's training and traditions, but might at any time be called into military service. Suppose that they should strike. They might at once be ordered into the army and then detailed, as soldiers, to return to their posts on the railways; and if they refused they might be tried by courtmartial and shot. The employees of the German state lines are not allowed to organize labor-unions such as the

employees of the privately-owned railways of Great Britain and the United States have. They may form local associations to carry on discussion and formulate complaints and petitions as to wages and conditions of employment; but a superior officer is always present at these meetings. They can present their complaints or demands to Parliament only through their officers, and political activity on their part to secure anything the railway administration does not want to grant, is unknown, and would not be tolerated.

These facts illustrate the differences between the conditions under which government management is carried on in such a country as Germany, with a monarchical government, and those under which it would be carried on under a democratic government such as ours. Can any one believe that if government ownership were adopted here the powerful railway brotherhoods would be abolished, and political activity by employees to secure such wages and conditions of employment as they wanted would be prohibited? If we could expect this to be done, it would be, to the minds of railway employees, a powerful argument against government ownership; and if it were not done, experience indicates that the result would be the bidding, by our politicians, for the votes of the great army of railway employees, by means which would be ruinous to the railway service, and bad for government, for the public, and in the long run for the employees. No American citizen doubts that democratic government is the best form of government for protect ing the personal and property rights of the citizen; but one may be a very patriotic citizen and yet be sure that democratic government is a very bad form for managing large industrial con

cerns.

However, while all must concede

that, in many ways, the German lines are well managed, this is far from conceding that they are managed better, "from the standpoint of the interests of the public, than are those of the United States under private ownership. It is true that their net earnings, amounting in 1910 to $229,368,256, are paid into the government treasury; but after deducting from this amount interest at 3 per cent on the cost of construction there is left only $86,607,000. Professor H. G. Moulton, of the University of Chicago, in his recent book, Waterways versus Railways, places the clear profit from the Prussian railways at only about $57,000,000. But these figures are less than the annual taxes paid by the railways of the United States, amounting in 1911 to about $110,000,000; and, of course, the clear profits, after interest, earned by state railways are no less and no more a contribution to the support of the government than are the taxes paid by privately-owned railways.

Furthermore, if the charges to operating expenses for maintenance on the German railways were as generous in proportion as are the similar charges of American railways, their apparent net earnings would be less. It is a general practice of state railways, of which those of Germany have not been innocent, to present as good a showing as possible by making inadequate charges to maintenance, and then to charge to capital account new equipment really acquired to maintain the property, thereby swelling the capital account and the amount of interest that has to be paid on it. While this makes an apparently good showing for the management, it is the opposite of good for the public in the long run, and was largely responsible for an increase of $14,000 per mile in the capital cost of the German lines between 1900 and 1910.

The freight rates charged by the German railways in order to make as good a financial showing as they do, are higher than those of the railways of the United States, averaging 14 mills per ton per mile, as compared with 7.5 mills in this country. Their average passenger rate is lower, being only 9 mills, as compared with 19.3 mills in the United States, but the lower average in Germany is due to the fact that a large proportion of passengers there take the poor and low-priced thirdclass service. For the first- and secondclass services, which are comparable with the service in this country, the rates are, first-class, 3.45 cents per mile; second-class, 2.55 cents. It must also be remembered that these rates are charged on railways in a country where the wages of labor, which deterof labor, which determine both the cost of labor to the railways, and the amount that the people who work for wages can afford to pay for transportation, are much less than in the United States. For example, the average annual wage of railway employees in the United States is $673, while in Germany it is but $388. Therefore, on the average, a day's labor will buy almost as much passenger transportation in the United States as it will in Germany-although the density of passenger traffic is about four times as great there as it is here and it will buy three-and-a-half times as much freight transportation here as in Germany. This is probably the best test of whether the railway rates of a country are high or low, for in the long run the wage-earner, as consumer, pays freight as well as passenger rates, and it shows that the rates of the German lines are relatively much higher than those of the railways of the United States.

To summarize, then: the privatelyowned railways of the United States, while paying their interest and very moderate dividends, pay wages to their

employees much higher than those of the German lines, charge rates much lower, and at the same time turn into the public treasury in the way of taxes an annual sum greatly exceeding the profit derived by the German public from its railways.

III

Hardly of less interest than the railways of Germany to the student of state management are the railways of Australia. In Australia government is as near pure democracy as anywhere in the world; and here the troubles that characterize public management of industry under democratic government were long experienced. The location of new lines was often determined by log-rolling in the provincial parliaments rather than by consideration of the public needs. The wages of employees were determined rather by the relative importance of the men as voters than according to economic considerations. In consequence of these things most of the lines were long unprofitable.

In 1903 the labor situation came to an extraordinary crisis in Victoria. Parliament at last refusing to yield to their demands, the employees struck. The government won. The question of completely disfranchising the railway employees was considered. There was at last passed a law forbidding employees of the state, including those on railways, under heavy penalties, from taking any part whatever in politics except to vote for members of Parliament. Their unions were practically broken up. To free the railway management from political interference, legislation also has been passed in all the provinces placing the control of operation completely in the hands of permanent non-political railway commissioners, instead of political ministers.