The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Translator's Note
• Where and Why Public Ownership Has Failed
• Book I: Public and Private Trading Operations
• Chapter I: Two Precepts
• Chapter II: The Three Mainsprings of Human Action
• Chapter III: Determining Motives of Private As Against Public Enterprises
• Chapter IV: Government and Municipal Trading Operations
• Book II: Financial Results of Government and Municipal Ownership
• Chapter I: Bookkeeping In State and Municipal Trading Enterprises
• Chapter II: The Belgian State Railroads
• Chapter III: Prussian Railroads
• Chapter IV: State Railways of Austria and Hungary
• Chapter V: Italian Railways
• Chapter VII: Railways of New Zealand
• Chapter VIII: Government Railroads In France
• Chapter IX: Public Vs. Private Operation
• Chapter X: The Holy Cities of Municipal Operation
• Chapter XI: Operation of Gas and Electricity In the United Kingdom
• Chapter XII: Tramways In Great Britain
• Chapter XIII: Housing of the Working Classes and Public Ownership In Great Britain
• Chapter XIV: Housing of the Working Classes On the Continent
• Chapter XV: Government Control of Food Supplies
• Chapter XVI: Victims of Government Ownership
• Chapter XVII: Charges, Debts and Credit
• Chapter XVIII: Fictitious Profits
• Chapter XIX: Fiscal Monopolies
• Chapter XX: The Alcohol Monopoly In Switzerland and Russia
• Chapter XXI: Financial Disorder
• Chapter XXII: The Purchase Price
• Chapter XXIII: Delusions of Profit and the Life Insurance Monopoly In Italy
• Chapter XXIV: The Fiscal Mines of the Saar District
• Chapter XXV: Public Versus Private Enterprise
• Book III: Administrative Results
• Chapter I: Administrative Results
• Chapter II: The Safety of Travelers Upon State and Private Railway Lines
• Chapter III: Disorders, Delays and Errors
• Chapter IV: Official Conservatism
• Chapter V: Labor
• Chapter VI: The Consumer
• Chapter VII: Programs of Organization and Regulation
• Book IV: Political and Social Consequences of Public Operation
• Chapter I: Socialist Programs and the Facts
• Chapter II: Bluff
• Chapter III: Results of Experience
• Chapter IV: The State a Dishonest Man
• Chapter V: Corruption
• Chapter VI: Nationalization of Public Utilities and the Foundation of Great Fortunes
• Chapter VII: Disintegrating Character of Public Operation
• Appendix %u201ca%u201d: Alcoholism In Russia
• Appendix %u201cb%u201d: the Financial Year In Australia
• Appendix %u201cc%u201d: the Shortcomings of the Telephone In England

CHAPTER III

DETERMINING MOTIVES OF PRIVATE AS AGAINST PUBLIC ENTERPRISES

1. When one or more individuals invest their energy, their knowledge, and their capital in an industrial enterprise they must be convinced beforehand that in so doing they are responding to a demand on the part of a group of consumers having a sufficient purchasing power to repay them for their services, as well as for the products which will be offered.

If the estimates of the founders of such an enterprise are correct, they will gain; if incorrect, they will lose. In either case they will bear the responsibility for their acts. Gain or loss is the inevitable and infallible consequence of every such enterprise. And, as every man who is on the point of engaging in business knows that one of them must occur, his energy is spurred on by the hope of the one, while at the same time it is being curbed by the fear of the other.

The industrial and commercial progress of all nations far advanced along the pathway of evolution proves that the majority of those individuals or groups of individuals who have engaged in business undertakings have calculated accurately.

2. Statesmen at the head of nations or municipalities are not necessarily responsive to the conditions just described. The undertakings in which they involve the state or the municipality will not yield them any personal profit in case they succeed, nor will they be called upon to suffer any loss if they fail. The inevitable and infallible criterion of the business man is lacking in their case. By what test, then, are their motives to be construed?

As a rule their action is determined by the amount of personal advantage resulting for themselves; not, it is true, in the form of gain, but in the form of an increase in the duration or extent of their power. They establish such or such an enterprise, because, in looking about for some bait likely to attract the public, they have found this particular one. Does the enterprise fill a long-felt want? That is a secondary question. The first consideration is what will make the broadest appeal to the popular prejudices and sympathies of the moment. I have heard ministers and deputies say: “There is nothing to do, but we must do something.”

Now expenditures which have a certain audacity about them are sure to be accepted with a much better grace than those which do not appeal to the imagination of the public.

As an instance in point, let me quote from my own experience.

When I became minister of Public Works I speedily discovered that the government buildings under the jurisdiction of my department were being very badly kept up by the department of fine arts (Beaux Arts). Knowing by personal experience the importance of roofs I turned my attention first to them. In the case of the Louvre, to quote but a single example, the water leaking through the roofs was cracking the walls. Moreover, not one of the seventeen lightning rods attached to the building was in working condition, while the majority of them were so insecure that they were liable to fall at any moment on the heads of passers-by. I used the entire appropriation at my disposal to insure an efficient roofing of the buildings entrusted to my care. The rest could wait.

But, from the point of view of popularity, I had made, as I had foreseen, a wretched move. That form of flattery which consists in the sacrifice of one's own to public opinion forms part of the very stock in trade of the politician; and, if he is shrewd, he will not hesitate to make the sacrifice.

Again, in 1902 the French Parliament passed a law on public hygiene, under which municipalities are required to furnish drinking water and sewerage systems. A number of deputies and senators who had voted for the bill hastened immediately to the minister of the interior to demand that the law should not be applied to the municipalities in their particular districts. And so it goes.

The following illustrates a different but equally dangerous tendency:

Certain officials of the Beaux Arts are provided with funds for the purpose of placing orders or for the purchasing of works of art at the salons. These men are beset by recommendations and advice of all sorts. Concentration of their appropriations upon one important work is out of the question; they must fritter them away in small amounts, because there are so many people to satisfy. In all purchases of art works there is, of course, a large proportion of mistakes, which will be accounted in the future as dead losses; but it is not necessary to begin by buying failures, as so frequently happens.

Nor does this criticism refer solely to contemporary officials. Ministers and under-secretaries of state of other periods than our own were equally human. Side by side with the Thomi Thierry art collection in the Louvre are to be found government purchases of works by the same artists, made at the same time. The degree of taste shown in the choice of the pictures included in the Thierry collection is far superior to that shown in the official collection.

3. In 1879 Charles de Freycinet prepared his grand program of public works. There is no more agreeable pastime than to prepare a program of public works. Hope is inspired, delusions encouraged, and we can leave to our successors the trouble of realizing them. All succeeding ministers of Public Works have been liquidators of the Freycinet program. The spirit which dictated it struck the public imagination. “The government,” it was said, with the hearty applause of the French Parliament, “must assume charge of the national savings.” As if there were any savings except those of individuals, and as if those who had known how to accumulate them would not be more careful to use them to good purpose than those who had had no interest in their acquisition! All the deputies and senators demanded a share of the cake for their constituents. M. de Freycinet yielded everything, encouraged still further demands, and requested engineers to submit plans for railways, canals, or ports. The government concentrated all its energies on carrying out his program.

In 1883, however, and as a result of all this, the nation would have been bankrupt if M. Raynal had not closed certain contracts with the railway companies; contracts which Camille Pelletan later described as infamous. But he has never explained what the government would have done if the contracts had not been signed.

4. A so-called movement of public opinion frequently rewards intensive study. Any day you may be suddenly aroused to the consciousness that there is a movement on foot in favor of a certain public undertaking. On the side you are informed that so and so and so and so (local politicians) have made large speculations in view of precisely this project. The municipality, for its part, may placidly obey the hidden impulse. If not, the parties interested proceed to take a more or less direct part in the struggle. In any event the simple, hoodwinked people become very enthusiastic for or against the issue.

In 1902 the City of Birmingham decided to submit a bill to Parliament which would permit it to take over and operate its urban tramway system. A referendum vote was taken. Out of 102,712 registered electors, only 15,742, or 15 per cent. of the total electorate, voted. Moreover, according to the Daily News, “high officials of the town led gangs of municipal workmen to the polls.”1 Major Leonard Darwin says in this connection:

“The more energetic and able they (the officials) are, the more likely will they be to view with favor new projects connected with municipal trade.”2 In the end, perhaps, such an extension of the official functions will mean more work for such enthusiasts. But their influence will probably be greater, and conceivably even doubled, through the resulting increase in their financial importance.

5. The promotors and leaders of movements in the direction of government and municipal ownership frequently resort to exciting and exploiting the so-called invidia democratica, or democratic jealousy, one of the plagues of the Roman Republic, and always in evidence in an individualistic state. Men who are at the head of private enterprises are denounced as exploiting their fellow-citizens. Their profits—usually exaggerated—are quoted, and the claim is made that such moneys will be restored to the people when governments, local or national, provide everything and individuals nothing.

Was the object of the purchase of the Western railway in France economy in expenditure and improvement in transportation facilities? Not one of those who demanded and voted for it dared to make such a claim. With the lines belonging to the state the deputies would have places for their constituents, a certain right of political interference in the administration, and hence a large degree of electoral influence. Resolutions favoring the purchase of the Western railway had been rife since 1902, but no minister of Public Works had endorsed them. Immediately after the elections of 1906, however, Georges Clemenceau, then Minister of the Interior, started on a hunt for a program which would be Socialist without being collectivist. Socialism is the present phase of the movement; collectivism is the Socialist's dream.

Clemenceau took from his predecessors: 1. Noonday rest. 2. Limitation of working hours and a collective labor contract. 3. The income tax. 4. Labor pensions.

But he was also anxious, by socializing something, to conciliate the Socialists and the Radical Socialists. He therefore selected the purchase of the Western railway as suited to his purpose. Then, in order to be certain that the affair would go through, he implicated Louis Barthou in the affair, in the latter's capacity of minister of Public Works, although Barthou's antecedents did not point to him as especially fitted to carry out such a measure.

6. One of the chief incentives to the establishment of a government monopoly is the hope of procuring resources without the stigma of an apparent fiscal object attached. It is one way of making the taxpayers pay taxes without perceiving that they are taxes. As a matter of fact they are simply misrepresented taxes. Appeals of their promoters to the moral and hygienic interests of the nation, in order to effect the desired object, are equally disingenuous.

For example, the alcohol monopoly in Switzerland was submitted to the people as designed to combat alcoholism, while putting an end to the ohmgeld duties, a sort of internal revenue duty. As for alcoholism, the financial history of the individual cantons, which have been receiving their share of the profits of the monopoly for the purpose of fighting it, proves just how relative has been the attention devoted to the eradication of that particular evil.

But there was still another motive, although it has been mentioned only in conversation. In Switzerland every quart of alcohol is produced from potatoes. Growers found that the distillers were buying their potatoes too cheaply. Therefore, at the opportune moment, the Federal government increased the purchase price of domestic alcohol, saying to the potato grower: “You see, we have increased the price of alcohol. Whereas, in Austria, alcohol costs 20 or 30 francs, we in Switzerland pay more than 80 francs for it; and we are doing so in order that you can sell your potatoes at a good price. In other words we are granting you a subsidy.”

When the monopoly of alcohol was established in Russia it was repeated in every key that the object in view was moral and not financial. It was established, in the first place, in order to ensure to the moujik (peasant) absolutely pure alcohol. Emphasis was placed on the characteristic retail shops of the government, kept by officials who can have no interest in increasing consumption. There is neither chair, corkscrew, nor glass in the shop; therefore, the moujik, after buying, must go elsewhere to drink.

But, in 1912, the receipts from the monopoly on alcohol were estimated at 763,990,000 roubles, out of a total income of 2,896,000,000 roubles, or 26 per cent. It is, therefore, easily surmised that officials charged with the sale of alcohol would be held to a strict account if devotion to the temperance cause should happen to bring about a deficit in the budget. The moral aspect of the monopoly is completely effaced by fiscal interest.

M. Augugneur heads a local and national ownership party. Why should he advocate public ownership? Simply in order to have a platform—a reason for party existence. The future of municipal or government undertakings is a secondary matter. What is necessary is an issue which will lead to political action and to immediate power.

If any enterprise inaugurated by a mayor or by a minister is difficult and useless neither the mayor, the minister, the municipal councillors, the deputies, nor the senators who have brought it into being will be called upon to bear any material responsibility for it. The taxpayers of to-day and to-morrow must assume the entire burden. Sometimes the failure of an undertaking involves a decrease in the influence of the politicians who were its promoters. But frequently it increases their importance in the public eye.

The risks which the Freycinet program carried with it; the uselessness of a quantity of the work included in it; the burdens which have accrued from the operation of railroads; an excess of 30 per cent. in the construction of navigable ways which are not yet finished, all this has in no way injured the prestige of the author of that program. The advocates of the purchase of the Western line are coping cheerfully with the deceptions it has engendered, and they imagine—and rightly—that no one, or almost no one, has ever placed in parallel columns their promises and the actual facts.

Again, had M. Barthou conducted a private business after the fashion in which he carried through the purchase of the Western road, he would long since have been branded as a defrauding bankrupt. As a public official the state has rewarded him for his efforts in this direction with the premiership of France.

Conclusions.

• 1. Any private undertaking has a definite objective point—gain; and a certain test—gain or loss.
• 2. The motive behind municipal and national undertakings is usually political or administrative influence for their promoters.
• 3. The promoters of public undertakings escape all material and—generally—all moral penalty.

[1]Raymond Boverat, Le Socialisme Municipal en Angleterre et ses Résultats Financiers, p. 444.

[2]Municipal Trade.