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 II

THE BELGIAN STATE RAILROADS

1. Railroads are the most important industrial enterprises undertaken by a state. What, then, are the financial results of their public operation?

The Belgian state railway was established by the organic law of June 1, 1834. By reason of the length of time it has been in operation it has a right of precedence.

Marcel Peschaud has published in the May and June numbers of the Revue Politique et Parlementaire a remarkable study of the Belgian railways, but his analysis would lead us too far astray. I must confine myself, therefore, to a résumé of what M. Schelle has to say on the subject in his report to the International Statistical Institute.

The law of 1834 provided that a complete account of the operations of the railways be presented to the Chambers annually, by which account are understood the receipts and expenditures, together with the use of the funds for the construction of lines placed at the disposal of the new department. The accounts thus rendered soon proved to be altogether inadequate.

In 1845 estimates of interest and sinking fund charges were added to the previous requirements. Controversies arose over these estimates, and it became necessary to change the system several times in order to settle the rate question. At the close of 1878 it was decided that the management of the railroads should make up a balance sheet in the form of commercial balance sheets. This was done, but capital charges were computed at a uniform rate based on a period of retirement of ninety years.

Moreover, according to M. Nicolai (Government Railways of Belgium, 1885) the cost of replacements and reconstructions was charged to the construction accounts without deductions for renewals and repairs. On the other hand, the annual payments for the purchase of lines which should have been charged to construction were charged to operation.

“Never,” says the minister of Public Works (Report for the year 1905), “have the railway accounts, that is to say, the accounts prescribed by law, been found other than defective. On the contrary, the statements of conditions, the statistics, the estimates and reports, relating in part to such items as interest, sinking funds, pensions, etc. (which are not within the legal powers of the railroad department to pass upon), have never ceased to be the subject of the most lively discussions. Charges have been made in turn, or sometimes simultaneously, that the profits were swelled and concealed, that there was too much red tape, even to the point of disregarding the essential rules of a business enterprise, or that there was not enough control, because the accounts were separate from those of the Treasury. The subject has furnished an inexhaustible theme of argument.”

Of late years it has been decided that the data contained in the annual reports ought to be kept with the Treasury accounts, and that the balance sheets should be made up between the department of Public Works and that of Finance. The accounts for 1905 and the years following have been established upon this new basis.

As for capital charges met by enlarging the public debt, a rate of issue was adopted, which varied from 4.90 per cent. to 3.11 per cent. Then the government proceeded to publish, under the title of “annexes” to the financial report: 1”. A general balance sheet for the year ending December 31, showing on the credit side construction costs since the beginning of the undertaking and the gross operating receipts and on the debit side the capital already retired and remaining to be retired, the amount of charges upon this capital, the dues and rents paid by the state railway system to other railroad enterprises, operating expenses and the profit and loss balance. 2”. A separate account of operating receipts and expenditures for the preceding year. 3”. A provisional account of operations for the current year, and of profit and loss, comprising, on the one hand, operating expenses, pensions charged to the general budget, fixed charges, including yearly installments, and the portion of receipts due to companies whose lines are operated by the government; and, on the other hand, the profits of operation, properly so-called, together with various other profits. 4”. A table recapitulating the financial results since the establishment of the system (1835) setting forth the annual balances in profits or in losses. 5”. A table of interest and sinking fund charges from the beginning. Finally, tables of operating statistics.

As a result of the new system adopted the profit shown in a large number of the previous reports was transformed into a deficit.

The report for the year 1909 gives the following results, computed in francs:

Interest and sinking fund charges were computed, for 1908, at 94,015,000 francs and, for 1909, at 97,020,000 francs.

“To sum up,” concludes M. Schelle, “if, from the very beginning, we compare the positive with the negative balance of each year, and add the sum, we find in 1908 a final net profit of 30,966,000 francs and in 1909 one of 24,938,000 francs.”

The maximum net gains were 44,975,000 francs in 1910, and the maximum net losses 73,998,000 francs in 1886. During many years the summaries which now show deficits would have shown profits in the years previous to 1885.

The fancy that the state budget can ever be repaid for its outlay through the profits of the railroads no longer exists in Belgium.

M. Helleputte, minister of Railways, says in his preliminary note to the operating report of 1908:

“The operation of Belgian railways has undergone various fortunes. Since 1835—74 years—the balance has shown a deficit 36 times and 38 times a profit. Since the beginning of these operations the total profits exceed the total deficits only by the small sum of 31,274,000 francs, or an annual average of 422,600 francs for an average active capital of 778,733,000 francs, or .05 per cent., all of which amounts to saying that, up to the present day, the railroad has operated at cost.”

The report goes on:

“If we take into consideration the accumulated interest upon the deficits, the amount of which had to be borrowed from the Treasury, and, if we deduct the debit balances, the apparent surplus gives place to a deficit of 86,836,000 francs, or an average annual loss of 1,173,000 francs—0.11 per cent. of the average working capital.”1

During the great convention of Belgian manufacturers and merchants, on November 29, 1911, M. Cannon-Legrand said:2

“The Belgian government acknowledged a loss of 6,965,000 francs in 1907, more than 7 millions in 1908, and 6 millions in 1909. In 1910 we were promised a profit of 4,500,000 francs, which has now dropped to 2,790,000 francs.

“On the other hand, the capital investment has reached 2,731,000,000 francs, showing an average increase for the last three years of 50,000 francs per kilometer for the whole system (4,329 kilometers—2,706 miles).

“Thus, during the year 1910, the capital invested by the government in its railways realized exactly 0.10 per cent. This was an absolutely exceptional year, both in volume of traffic and in freight and passenger receipts. It brought into the coffers of the railroads 27,725,000 francs more than in 1909, in which year the system had earned approximately 12,230,000 francs more than in 1908.”

We are thus justified in concluding that the budget of the Belgian government has derived no advantage from the operation of railways.

2. But does not such operation redound greatly to the advantage of travelers and shippers?

The partisans of ownership and operation of railroads by the state are constantly harping upon the cheap rates of state railways, as opposed to the high rates established by private companies.

By an order issued on the 25th of October, 1911, the minister of the Belgian Railway department raised the rates on pit coal on the strength of a law of 1910, which, in its turn, found support in another law, passed April 12, 1835, which says:

“Temporarily, and while waiting for experience to guide to a final adjustment of the rates to be levied by the aforesaid road, in conformity with Article 5 of the law of May 1, 1834, these rates shall be regulated by a royal decree.”

Now, Article 5, of the law of May 1, 1834, under which the Belgian system was established, reads: “The profits of the road accrue from the rates which are to be regulated annually by law.” Thus, the law of 1835 is only a temporary expedient, which must be renewed at certain dates. Although this experiment has lasted since 1835, the ministry considered that it needed a new lease of life.

Freight rates for pit coal were increased from 1 to 2 centimes per ton kilometer by tariff No. 61, which replaced tariff No. 31. The convention of Belgian manufacturers, on November 29, 1911, entered a protest against this increase in a series of resolutions from which we quote the following:

“The state is managing its railway lines from the sole point of view of making them serve as purveyors to its insufficient resources. It is operating in defiance of rules essential to the prosperity of all commercial enterprise, without any rational accounts of such a nature as will tend to keep it fully informed as to net cost.”

In view of this resolution, toward the close of 1911, the conclusions in the 1907 report of M. Hubert, committee reporter of the railway budget for the third time, are evidently as true to-day as they were then:

“The management of the Belgian state railways has committed itself to a policy of political expediency which is sacrificing the general interest to interests purely local and electoral.”

“The personnel is too large, ill paid, unwisely selected, and works overtime.”

“Passenger service is both lacking in comfort and very slow.”

“From the standpoint of rates, passenger service is favored at the expense of the shippers. The department repudiates all responsibility for the acts of its employees or the failure of its equipment.”

“Far from trying to meet its patrons half way, the Railroad department maintains rates which are purely arbitrary, and shows itself violently opposed to any possible competition.”

Finally, as spokesman of the Central Railway Division, M. Hubert concludes:

“It will become necessary to do what has been done in Holland,—viz., lease the railways, with conditions attached to the lease safeguarding the rights of employees and the interests of passengers. And it is certain that private enterprise would derive far better results from our immense railway resources than the government has been able to do. It is advisable that this outcome be seriously considered, since future possibilities indicate that such a course is unavoidable, if expenses continue to increase at the same rate.”

Yet French engineers are unanimous in praise of the skill with which the Belgian lines are managed by the minister of Railroads and his distinguished co-workers.

[1]Revue Générale des Chemins de Fer, November, 1911, page 352.

[2]Bulletin du Comité Central du Travail Industriel, December 15, 1911.