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THE POST OFFICE TELEGRAPHS AND THEIR FINANCIAL RESULTS.∗ - William Stanley Jevons, Methods of Social Reform and Other Papers 
Methods of Social Reform and Other Papers (London: Macmillan, 1883).
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THE POST OFFICE TELEGRAPHS AND THEIR FINANCIAL RESULTS.∗
There is no need to describe the course of events which led, in February, 1870, to the actual transfer of the telegraphs to the postal department, and to their reorganisation and extension, at the cost of the public. The public are practically aware of the fact that they have, in every money-order office, a conveniently situated telegraph office, whence they may, at the cost of a shilling, send a message to any town or almost any village in the United Kingdom. The messages appear to be generally delivered with speed and regularity, and most people are satisfied, so far as I can gather.
Under the fostering care of a Government department, the traffic has indeed grown enormously, the number of ordinary messages sent in a year being now about 20,000,000, instead of 6,000,000, as it was just before the transfer. The intelligence transmitted for the newspaper press has been multiplied more than a hundredfold, from 2,000,000 to 22,000,000 of words. According to a statement which went the round of the newspapers, the number of offices has been increased from about 2,000 to little short of 5,600. The telegraph lines now extend over 24,000 miles, with 108,000 miles of wire, compared with 5,600 miles of line, with 49,000 miles of wire, and the average price of a telegram has been reduced from 2s. 2d. to 1s. 2d. The number of telegraphic instruments has been increased, it is said, in the extraordinary proportion of 11,600 worked by the Post Office, against 1,900 possessed by all the companies. I do not know who first put afloat these numbers, but I find from Mr. Scudamore's Official Report (p. 73) that in reality the telegraph companies had, in 1865, 16,066¼ miles of line, 77,440½ miles of wire, and, in 1863, 6,196 instruments, numbers which compare very differently with those of the Post Office.
Nevertheless, it will be agreed that the practical working of the department is now satisfactory, and but for the statements of certain gentlemen recently commissioned by the Treasury to report upon its financial position, it might have seemed that the results of the transfer afforded matter only for congratulation. This Report, however, shows that the working expenses of the department have steadily advanced, until they form 96⅔ per cent. of the income, leaving scarcely anything to pay the interest on the large sum of about £10,000,000 sterling sunk in the system, or to meet contingent expenses and liabilities. When we observe the steady way in which the working expenses have advanced in proportion, being rather more than 57 per cent. in the fourteen months ending 31st March, 1871, 78¾ per cent. in 1871–2, 89½ in 1872–3, and 91½ per cent. in 1873–4, it becomes impossible to hope that the telegraphs will ever pay their real expenses under the present tariff and regulations.
I have no hesitation in saying that in a financial point of view the purchase of the telegraphs has been a blunder, and that it was brought before Parliament and the country upon representations which have proved in many particulars contrary to fact. I need hardly say that the capital cost of the present telegraphs has been at least four times what was estimated. In his first Report (p. 37), Mr. Scudamore distinctly and confidently asserted that the whole of the property and rights of every description of the companies might be purchased for a sum within £2,400,000. Between two and three times as much has been paid, and there are yet contingent claims of unknown amounts to be met. This discrepancy, however, is nothing to that regarding the cost of reorganising the system. Mr. Scudamore estimated the cost of all the required extensions at £100,000, and, though this sum seemed absurdly small, he elaborately explained before the Select Committee (Q. 1922) that it would be ample to cover the whole cost of the transfer and extensions. We now know, not exactly what the real cost has been, but that it may be roundly stated at several millions, instead of £100,000. In a paper on the subject of the telegraphs, read to the Statistical Society of Manchester, in April, 1867, I estimated the cost of the transfer and reorganisation of the telegraph system, apart from the purchase-money, at £2,500,000; and thus, without pretending to any special knowledge on the subject, I was at least twenty-five times more correct than the Government officer charged with the business.
We were promised a net annual revenue of from £200,000 to £360,000, and were told that we might rely upon this “with almost entire certainty” (Q. 1900∗ ), even with the moderate traffic of 11,000,000 telegrams. At the same time it was plausibly asserted that, as the business increased, the expenses would increase in a much lower ratio (Q. 1867, 2441). I have calculated that, in order to verify Mr. Scudamore's predictions, we ought now to have a net revenue from the telegraphs of £600,000, instead of such a trifle as £36,725 in the year ending 31st March, 1875. When we inquire into the particulars of the present great expenditure, like inconsistency between predictions and results is met with. It was not unreasonable to expect that the one centralised staff of officers and engineers required by the Post Office would be less numerous and costly than the aggregate of the four or more separate staffs maintained by the companies. Accordingly, Mr. Scudamore asserted over and over again that this would be the case. He says (Report, p. 38): “In their case the average expense is swelled by the costs of a divided management, by the rent of many separate establishments, by the maintenance of a staff of engineers, inspectors, and superior officers for each of four companies, whereas one such staff would suffice under a united management.” Similar statements were made in various stages of his examination before the Select Committee (Q. 2152, etc.), and we were even told that, in the higher grade of clerks, the rates of salary under the Post Office would be lower than in the companies (QQ. 3296—3298). Compare such statements with those in p. 8 of the Treasury Commissioners' Report, where we are informed, “That the salaries of all the officials of the telegraph companies were very largely raised after their entry into the Government service,” and that, in fact, “much higher rates are paid by Government for the subordinate work of the Civil Service than are given by private employers for similar duties.” Nor does the amalgamation seem to have effected any economy at all; for we are told, on the same authority, “That the staff at present employed for the supervision of the Consolidated Service in the secretary's office, the engineer-in-chief's office, the divisional engineer's offices, and the account branch is comparatively greatly in excess of that considered necessary under the divided management of the telegraph companies.” In regard to the account branch, I may point to Mr. Scudamore's assertion (Q. 2438), that the previously existing staff of the Post Office could, with a trifling additional expense of £1,000 a year or so, undertake all the accounts of the telegraphs. After calculating that the companies must spend at least £12,000 a year on accounts, he says: “I will undertake to say, without the slightest fear, that the accounts will not cost us £1,000 in addition to what we already spend for accounts.” Again, he says emphatically: “£1,000, I am confident, is an extremely liberal estimate for that.” Now we are told on the best authority that the staff of the account branch of the telegraph department is in excess comparatively of that of the aggregate of the old companies, that is, I presume, in excess comparatively to the traffic conducted.
It ought not to be forgotten that throughout the preliminary reports and the proceedings before the Select Committee, it was distinctly stated and promised that the Post Office would not require or even desire a statutory monopoly of telegraphic business. Mr. Scudamore, in fact, said distinctly: (Q. 294) “I never should wish for that protection.” Nevertheless, no sooner had the business advanced a step than a clause prohibiting all competition in inland telegraphic business was at once inserted in the Act of Parliament.
Various pleas have been put forward in defence of the department, the most plausible, perhaps, being the assertion that the results are exactly comparable to those of the Post Office after the penny postal reform. Nothing, however, can be more opposed to facts. It is true that the great reduction of postal charges caused a loss of net revenue of £1,159,000, and that twenty-four years elapsed before the same net revenue was again realised. This fact alone ought to be a caution to those who are so frequently and rashly asserting that low charges pay best. But there is this great difference between the postal and telegraph reforms—that the postal net revenue was never less than half a million, and, still more, that it immediately began to recover, so that by the year 1847 it had nearly reached a million. To put this matter in the clearest light, I have compared the net revenue of the Telegraph Department with that of the Post Office, during corresponding years before and after the penny postal reform. The results are in the following table:
There cannot be a greater contrast than between the rapid progress of the postal net revenue and the alarming decrease in the telegraph net revenue. This comparison entirely bears out the statement of the Treasury Commissioners that “The Telegraph Branch is not in the position of the Postal Department, after the introduction of the Penny Postage.” It reminds one, too, of the remark of Adam Smith, that the Post Office was the only kind of business that Government had always managed with success.
The explanation of this difference, I believe, is that which I gave in my paper, published by the Manchester Statistical Society, on the Analogy between the Post Office, Telegraph, and other means of Communication, namely, that the Post Office stands in an entirely unique position as regards the great increase in traffic which can be carried on with a small increase of cost. Sir Rowland Hill's reform was sound and successful, because he really did show that an immensely increased business could be done at a uniform charge of one penny. A postman, to put the principle as briefly as possible, can carry a hundred letters as easily as one, and a ton of mailbags can be transmitted by railway almost as easily as a single bag. But it is totally the reverse with the telegraphs, in which each message has to be individually received by a clerk, transmitted, retransmitted, written out, and finally delivered by a special messenger. In this case every increase of traffic involves an increase of expense in nearly the same ratio as regards many items.
From the fallacy of imagining that we can do with the telegraphs or railways just what we have done with the Post Office has arisen all this miscalculation. Whatever we may think of the bargains which the postal authorities made with the telegraph companies, or of the manner in which they expended the Savings Bank money without authority, they doubtless believed that all would be justified when they could show a large net revenue. Mr. Scudamore stated his opinion to the Select Committee that (Q. 2252) “the estimated net revenue will cover any capital that can possibly be wanted.' I can well remember, too, that the newspaper press generally urged him on to a vigorous and fearless policy, on the ground that the telegraphs would be sure to pay if they were only brought to every man's door, and the charges made low enough.
It is curious to reflect what would have been the consequence, if, as many people wished, a uniform sixpenny rate had been adopted instead of a shilling rate. Some of the Select Committee seemed to be in favour of such a rate, and Mr. Scudamore almost committed himself to it, saying (Q. 2105), “I am very much of opinion that a sixpenny rate will eventually pay very well,” and (Q. 2508, see also QQ. 2541–2546), “I should be very much surprised if we did not come to a sixpenny rate in a few years.” One member of the Select Committee actually argued that the telegraphs would produce a larger net revenue at sixpence than at a shilling, on the ground that daily newspapers paid better now at a penny than formerly at sixpence. He appears to have entirely overlooked the fact that newspapers look somewhat to the revenue from advertisements, and that in many cases they would continue to pay handsomely if the printed sheets were given away.
The blunders into which so many have fallen about low telegraphic charges are the less excusable, because there was abundant evidence to show what would be the results. The United Kingdom Telegraph Company had introduced a uniform shilling rate between all the principal large towns, which give the most remunerative traffic, and had found it impossible to make a fair profit. The London District Company had tried sixpenny and fourpenny rates, and could not pay their working expenses. Mr. Grimston, the Chairman of the Electric and International Telegraph Company, wrote a review of the scheme of Messrs. Chadwick and Scudamore, in which he showed various strong reasons for believing that it could not pay. Subsequently, in a very able pamphlet, entitled “Government and the Telegraphs, a Statement of the Case of the Electric and International Telegraph Company,” he stated these arguments at greater length, and showed what seem to me conclusive reasons for believing that, in the State telegraphs of Belgium and Switzerland, low charges had never really paid the working expenses, the international telegrams at a higher charge being the real source of profit. These warnings were well known to Mr. Scudamore, to the Select Committee, and to all concerned in the business, and Mr. Scudamore attempted to show their groundlessness. Yet they have been verified. I ought to add that one member of the Select Committee, namely, Mr. Goschen, appeared to be fully aware of the real financial characteristics of the scheme brought before them; he evidently foresaw the results of the negotiations, and was in a minority of one in protesting against some of the principal resolutions of the Committee.
I come now to inquire what must be done under the circumstances. I regret to observe a great tendency in the public and the newspaper press to treat the matter lightly, on the ground that a quarter of a million is nothing to the English Government, and that we get the value back in convenience. Assuming, for the present, that the loss is only a quarter of a million, which I much doubt, I may observe that the money might be spent better than in paying for needless telegrams. Spent, for instance, upon scientific investigation, and the higher education of the people, it would return results incomparably more important, and would place this country at the head of the civilisation and intelligence of the world. But whether or not money should be spent in other ways, I hold that it is bad in principle to incur a loss upon work which can be so readily made to pay its own expenses. If the country thinks little of a quarter of a million annually, it is because its finances have been regulated on sound principles, and our position would have been very different had we many affairs on hand like that of the Telegraph Department.
Many would be quite ready to argue, with Mr. Edwin Chadwick, that there is really no loss at all, because everyone who sends a telegram probably saves more in time and convenience than the cost of the message. But if this be so, then I ask, Why should other people be taxed to pay for this profit and convenience? If it is so great an advantage to be able to send a message at any moment, why cannot the sender pay the real working expenses of the work, just as we pay the full cost of loaves and legs of mutton? We must pay ultimately in one way or another, and I see no particular reason why we should be taxed to promote the sending of messages, rather than a hundred other useful things. No doubt many of the telegrams produce great profit to the senders; then why should they not pay a small part of the profit to cover the expenses? On the other hand, a large part of the increased traffic on the Government wires consists of complimentary messages, or other trifling matters, which we can have no sufficient motive for promoting. Men have been known to telegraph for a clean pocket-handkerchief. I may even venture to doubt whether the immense quantity of press telegrams now sent through the wires, at a great loss to the department, is really requisite. This traffic is a hundred times as great as it was eight or ten years ago, and, of course, if one newspaper largely employs the telegraph, others must do so in self-defence. But would not much of the matter be just as useful if sent by post? Whether this be so or not, others must decide; but I entirely object on principle to the Government subsidising the newspaper press, as it practically does at present. The ruinously low press tariff was one of the worst features of the Post Office scheme.
The question still remains, What is to be done? Many people will deprecate any retrograde movement, as it is called, on the ground that all will come right of itself. But the public should disabuse themselves of this notion. The Treasury Commissioners, after a full inquiry, say: “The conclusion from these figures cannot be avoided, that, unless some check is put on the expenditure, or some means devised for augmenting the receipts, the management of the telegraphs will become a permanent charge on the finances of the country” (p. 11). My own opinion is, that the telegraphs ought to be not merely paying the bare interest on the debt, but laying up a sinking fund for the redemption of that debt, or for meeting increased cost of maintenance. A very large sum of money has been spent by the Post Office during the last seven years on new posts and wires, which require renewing every fifteen years, on an average, so that this cost must be re-incurred after eight years more. Is the Post Office providing for this cost out of present revenue, or is it leaving the matter till the evil time comes? Remembering that, according to the Treasury Commissioners, even the stationery required by the Telegraph Branch was under-estimated, year after year, to the extent of one half, it would require a great deal to convince me that the department is even paying its expenses, not to speak of contingent charges in the way of pensions, the railway claims, extraordinary damage from snowstorms, and the ultimate redemption of capital. Mr. Scudamore formerly thought it desirable and probable, that the telegraph revenue would repay the capital cost in a term of years (Report, p. 148). My own impression is that, if we could have a real commercial audit of the accounts of the department, the present loss would be found to be more nearly half a million than a quarter of a million annually, including the interest on capital.
Some people, I feel sure, will urge the Government to reduce the tariff yet further. “Not pay at a shilling?” they will say; “then charge sixpence, and there will soon be traffic enough to pay.” I quite agree that, at half the present charge, we should have a vast increase of messages; and I think it likely that the department would have to provide for fifty millions of messages a year instead of twenty millions. But if we could at all judge of the future progress of the working expenses by their past progress, the financial result of a sixpenny rate would be to give us a deficiency of a million and a quarter, instead of a quarter of a million. In all probability the deficiency would be not less than a million pounds annually.
According to the experience of the Electric and International Company, indeed, a double business (increased by 105 per cent.) was transacted, with an addition to the working expenses of only 33 per cent., and Mr. Scudamore assumed that the same would be the case in the Government service. “As a matter of course,” he said (Q. 1888), “the average cost of a message decreases with the increasing number.” This, unfortunately, has not proved true with Government officials, for an increase of traffic of 81 per cent., between 1871 and 1874, involved an advance in the current working expenses, apart from the expenditure of capital, of 110 per cent. Under such circumstances, the department might as reasonably expect to retrieve their position by lowering the charges, as a trades man might expect to make money by selling cheaper than he buys. The case will appear all the more hopeless when we consider that the working expenses have advanced even since the introduction of the wonderful invention of duplex telegraphy, by which the carrying power of many of the wires has been doubled at a stroke, with very little cost.
The Treasury Commission make several suggestions as to the mode in which the revenue of the department could be raised to an adequate point. The inclusion of addresses in the twenty words, a tariff of 6d. for ten words, and a tariff of 1d. per word, are successively suggested. Of these the third seems to me oppressively and needlessly high; the second would probably cause more loss than gain, and still more hopelessly damage the revenue of the department. The first is surely the true course. It is found that at present the address of the sender consists, on the average, of four words, whereas two or three would be sufficient. The address of the receiver occupies, on the average, eight words. No less than fourteen words are required for the private service instructions of the operators, and with seventeen, the average number of words in a message, the total number of words transmitted for each shilling, on an average, is forty-three. At present, a person having very little to say is tempted to word his message fully, and fill it out, so as to make nearly twenty words, the charge being no greater. If the addresses were included in the twenty words, they would be abbreviated, say nine or ten words in all, leaving ten or eleven words for the message. This number of words would be sufficient for a considerable proportion of telegrams, when properly condensed, and the needless filling out would be checked for the most part. The average number of words transmitted for each shilling message would probably be reduced by ten words, or nearly twenty-five per cent., and the cost of transmission thus, in some degree, lessened. At the same time, the surcharge upon longer messages, whether charged at the rate of 3d. for five extra words, as at present, or ½d. per extra word, as I should propose, would produce a distinct addition to the receipts. It is quite doubtful, however, whether these changes would make a good balance-sheet without a considerable addition to the newspaper tariff.
It has been quite recently stated that the Post Office Department is disposed to adopt the suggestion of a sixpenny rate for short messages. On the whole it might be desirable to try the experiment, for the purpose of convincing the public, once for all, that high profits do not always attend low prices. Nothing but a complete breakdown will make people discriminate between the financial conditions of letter-carrying and those of telegraphy. Yet it ought to be pretty obvious that a considerable part of the cost of a telegram will be nearly the same whether the message be long or short. The clerk's time in receiving the message, the service instructions sent by wire, the cost of stationery, the porter's time in delivering the message, and some other items, will be much the same in any case. If, then, the public pay only sixpence instead of one shilling for each ordinary message, it is exceedingly unlikely that the difference will be saved in the diminished cost of transmitting twenty-five per cent. less words.
In the letter branch of the Post Office the economical conditions of the work are entirely different. A large part of the expenses of the department remains nearly unchanged while the traffic increases, and only a small part is actually proportional to the number of letters carried. Thus a reduction of charges in the Post Office often leads to such an increase of traffic that the net revenue, even at the lessened rate, is ultimately increased. But this happy result can only be achieved in the absence of any serious increase of working expenses. Now, in the telegraph branch a growth of traffic, as we have seen, and as experience proves, leads to a great increase of working expenses, and it follows almost inevitably that any reduction of the minimum charge for a message will cause a further deficit in the telegraph accounts.
The financial failure of the Telegraph Department must be deeply regretted, because it puts an almost insuperable obstacle in the way of any further extension of government industry in the present generation. The proposal that the Government should purchase the whole railways of the kingdom was, indeed, never a practicable or even a sensible one, as I have endeavoured to show in a paper published in the Owens College Essays. The notion that an experienced official could be appointed to negotiate the purchase of the railway property and then reorganise it in the style of the Telegraph Department, is simply humorous. But to one who has looked through the documents respecting this telegraph business, the conviction must come home that such an operation can hardly be repeated, even on a small scale. When we remember how profits running for ten years only were bought at twenty years' purchase; how the owners of a rotten cable since relaid, received more than the whole money they had spent upon it; and how the extension of the telegraph lines, when purchased, cost considerably more than the whole of what had previously been spent by the companies on the invention and introduction of the system, we must see that a series of disastrous precedents has been established.
One of the greatest needs of the country at present is a Government system of parcel conveyance, which would relieve the Post Office of the larger books and other un-remunerative heavy traffic, and at the same time organise into one system the great number of carrying companies, parcel delivery companies, and country carriers which now exist. At present the waste of power in the delivery of parcels at consumers' houses is extremely and absurdly great, and the charges made are in many cases exorbitantly high. A well organised system of parcel posts would produce benefits quite comparable with those of the penny postal reform, and would immensely improve the methods now employed in retail trade, and the distribution of goods to consumers. But if we must first buy up the rights and profits of all at present engaged in the conveyance of parcels, in the style of the telegraph purchase, the scheme becomes impracticable.
The accounts of the Telegraph Department unfortunately demonstrate what was before to be feared, namely, that a Government department cannot compete in economy with an ordinary commercial firm subject to competition. The work done is indeed great, and fairly accomplished on the whole, and some people regard the achievements of the department as marvellous. They forget, however, that it has been accomplished by the lavish and almost unlimited expenditure of the national money, and that many wonders might be done in the same way. If the English people like to spend their public revenue upon cheap telegrams, of course they can do so, though there may be two opinions about the wisdom of the expenditure. But in any case it is not wise for us to forget the extreme discrepancies between what was promised and what has been achieved by the telegraph department.
[∗]“Fortnightly Review,” December, 1875, vol. xviii. pp. 826–835.
[∗]These numbers refer to the questions in the evidence taken before the Select Committee on the Electric Telegraphs Bill, 1868.