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 XII

TRAMWAYS IN GREAT BRITAIN

When in 1870 Mr. Shaw Lefevre (the present Lord Eversley) introduced a bill granting to municipalities the right to construct tramways, he declared that his object was not to “authorize municipal operation.”

However, certain municipalities gave the bill a significance that its author never intended, and by interfering with the construction of tramways by private companies, further action on the part of the towns themselves was, of course, indirectly promoted. The bill gave to local authorities the right to purchase at the end of 21 years, “by paying the value of the tramways, buildings, lands, etc., but making no allowance for past or future profits of the enterprise, nor any compensation for forced sales and other considerations.” It was to no purpose that it was demonstrated to the committee of Parliament that a period of only 21 years was too short.

As a result the tramways already constructed suffered a heavy depreciation, and English capital, which might have been devoted to enterprises of this character, was invested in foreign countries. The large cities, anxious to keep their citizens within their own limits, for fear of losing taxpayers, not only forbade any extension of the tramway lines, but likewise set their faces steadily against the introduction, first of steam tramways, then of electric tramways.

The act of 1870 did not apply to Ireland. Therefore a certain contractor, named Murphy, was able to make a proposition to Dublin to establish electric tramways there, purchasable only at the end of 42 years, at an increased valuation of 33 per cent. He even offered to hand over a fixed percentage of the receipts. But the partisans of the municipalization of tramways in England and Scotland had sent delegates to combat these proposals—a proceeding which retarded their acceptance for two years.

The municipalities appealed to the act of 1870 to prevent the construction of tramways by private companies, and, as has already been said, opposed every method of transportation which might compete with their own enterprises. In 1905 the town of Newcastle fought the introduction of omnibus automobiles which the Northeastern Railway Company intended to operate on the streets. The committee of the Municipal Corporations' Association granted the desired authority, but with the restriction that passengers could not be taken up en route. Mr. Bonar Law, parliamentary secretary of the Board of Trade, opposed this reservation, remarking:

“Even though municipalities are engaged in an industry, is this a reason for giving them a monopoly which would not be granted to anyone else in the business? The question whether the House of Commons is to govern the municipalities or whether the municipalities are to control the House is beginning to present itself.”

The restriction was rejected by 127 votes to 110.

In 1896 Parliament adopted the Light Railways Act, designed to facilitate construction of such railways in Great Britain; its duration, however, was limited to five years. After that the law would have to be repassed each year. The act did not define the light railway, and, as a result, tramways have been included under this title. Therefore, they could no longer be purchased as provided in the act of 1870. At the end of 1903, 244 requests had been received for the application of the Light Railways Act, involving 870 miles of lines, and the committee had authorized 127 tramways having a length of 592 miles. This small proportion indicates the pressure brought to bear by the municipalities upon the government on the one hand, and upon their own citizens on the other.

Nevertheless, when in 1901 Mr. Gerald Balfour, president of the Board of Trade, submitted a bill, asking that this act be extended for a further period of five years, he met with the violent opposition of the Municipal Corporations' Association, an organization designed to extend municipal powers and to intercede for the towns with the government and Parliament.

The Municipal Journal, the organ of the Municipal Socialists, observed: “We will not permit this bill to take a permanent place on the statute books. The astute promoters of tramways have simply found in it a means of escaping the restrictions of the Tramways Act of 1870, and to avoid the embarrassing purchase clause.” The Journal continues: “When, at some future time, the rural districts are able to obtain their current at half the price that it costs to purchase from the municipal corporations, the consumers in the large towns will no longer be willing to continue to pay the present high rate. They will demand to be placed in the same category as the consumers outside the city, and they will have justice on their side. What, then, will become of the municipal electric plants?” After two attempts Mr. Balfour withdrew the bill, the government not daring to enter into conflict with the association.

In 1870 Glasgow was granted authority to construct and operate its tramways. It did not decide to do so, however, until 1894. It then introduced a fare of ½d, and raised the wages of its employees. In 1899 it exchanged horse cars for electric cars. Finally the municipality decided that it had an interest in owning all the property along the tram lines beyond its own immediate limits, and in articles in the Times, for 1902, the town was accused of having devoted to real estate transactions profits which should have been applied to paying off the debt on the tramways.

In 1902–1903 Mr. Hugo Meyer, an American, formerly a professor in the University of Chicago, made a comparison between the tramways situation in Glasgow and that of the street railways in Boston, the latter owned by a private company. The street railways in Boston were paying the city a sum of $432,500, or 13.1 per cent. of the gross receipts, equal to 44 cents per inhabitant. The Boston elevated railway, serving a smaller population than that of Glasgow, pays to the city in cash and in services $1,550,000, or nearly 13 per cent. of its annual income, which is at the rate of $1.67 per inhabitant. In 1904 Boston had one mile of street railway for every 2,300 inhabitants, while Glasgow could boast of only one mile for 6,700 inhabitants.

Birmingham imposed such conditions upon the company to which it had granted a franchise that, at the end of 1904, it had only one mile of tramways for 8,700 inhabitants.

In 1890 the cities of the United States having more than 50,000 inhabitants had 3,205 miles of street railway; England alone, proportionally, ought to have had 3,190. The entire United Kingdom had only 984 miles. In 1896 the United States had 10,000 miles of electric railways; the United Kingdom had 20. It is admitted that the urban population of the United States and that of the United Kingdom are the same. In June, 1902, in the United States there were 14,000 miles of electric railways within the limits of cities. In March, 1904, in the United Kingdom there were only 3,200. The inhabitants of British cities thus have at their disposal less than one-quarter of the facilities afforded to the citizens of the United States by this method of transportation.

Mr. Meyer sums up the situation in his book, entitled Municipal Ownership in Great Britain:

“The paralysis of private enterprise by reason of the doctrine that the profits which would be made by public utility undertakings established in the streets should belong to the public and not to 'private speculators' has been complete and permanent. Equally complete and permanent has been the powerlessness of municipalities to fill the void that has been made by paralyzing private enterprise.”

They keep others from doing what they do not do themselves. Such is the true result of the efforts of municipal Socialists in England.

Municipalization involves an arbitrary policy combined with a régime of privilege. On the one hand, we have taxpayers who are making contributions in order that a minority of users may have gas and electricity, or that the passengers in the street cars may ride below cost; on the other, we have consumers of gas, as at Nottingham, who complain that they are forced to pay an exorbitant price for their gas in order that the municipality may lower the taxes.1 At Sheffield the town proposed to apply the profit realized from the tramways to cover a deficit in the local taxes, a proceeding which would have necessitated a rise in the general district rate of 2d on the pound. The workingmen, however, declared that, being the true users of the tramway, the alleviation of the local taxes would be at their expense—a policy tending to rob the poor to help the rich.

Certain tramways were taken over by London by virtue of acts of Parliament. The courts interpreted these acts in such a manner that the stockholders found themselves despoiled, while the London County Council was in a position to become proprietor for a sum very much less than the real value of the stock. It was thus easy enough to draw at least temporary profits from the enterprise. The Council subsequently leased the tramways north of the Thames to a private company, but decided to operate the tramways south of it on its own account. The value in capital of the two systems is very nearly the same, £850,000 being invested in the northern system, and £896,000 in the southern. The northern system is rated for tax purposes at £18,000 more than the southern system.

In 1900 the profits of the northern system were £39,000, and those of the southern £51,774, a magnificent result, which might well be cited in favor of direct operation of tramways by the city. But this state of affairs lasted only a year. During the following years it was reversed:

At the time when the London County Council undertook the operation of the southern system it was yielding a net profit of £64,000 ($311,680).

Why this substitution of loss for profit? The following reasons have been given: Increase in salaries of employees; establishment of the 10-hour day; rate reductions; and, in 1903, a slight increase in the income tax.

From 1900 to 1902 the profits of the southern system were £75,161; those of the northern, £116,601—an advantage on the side of the private company of a difference of £41,440. The Statist finds a greater difference. In an article upon the tramways of London it observes: “Since 1894, the date on which the council became interested in tramways, out of total profits of £326,581, £314,347, or 96 per cent., have been made by the private enterprise.”

In order to justify this decrease in the receipts of the municipal undertaking the partisans of municipalization say: “The situation of the employees has been improved.” Very good; but if this improvement places municipal employees on a different footing in the way of salary from that of the employees of private companies, these municipal employees become a privileged class at the expense of the whole body of taxpayers; a small number of people thus profiting at the expense of everybody else.

“But transportation rates have been reduced.” Again, very good; but, if transportation constitutes a loss, the gift that the London County Council is making to the passengers it transports is being paid for by all the taxpayers.

Finally, the loss has been ascribed to the methods of electric transportation recently introduced. But the private companies have also had to introduce this change.

Municipalities operating tramways show the same weaknesses as the states which operate railroads.

In 1905–1906 the southern system claimed a profit of £4,000 ($19,480). But Mr. Haward, treasurer of the London County Council, admitted before the committee of the Municipal Corporations' Association that, if the payment of the penny tax per car mile for renewal had been enforced, there would have been a loss of £4,000, or a difference of £8,000.

Now the London County Council has declared that, since 1900, the southern system has brought in £23,900. The difference just quoted of £8,000 would then reduce this profit to £15,900.

The report of the auditor of the Local Government Board (referring to the accounts of 1904–1905) called attention to the inadequacy of the fund devoted to renewal, as well as to the custom of holding the tramways responsible for only a third of the expense of maintenance of that portion of the streets which they occupy. This latter custom of charging the expenses of one account to another is an easy method of increasing apparent profits, or of diminishing actual losses. In any state or municipal enterprise it is very difficult to obtain honest and intelligible accounts.

The Statist, of June 30, 1906, proves that the amount set aside to provide for wear and tear (depreciation), even during a satisfactory year of operation, is only 1.1 per cent. The sinking fund is 2 per cent. This makes a total of 3.1 per cent. a year. The figure is clearly inadequate; but, if it were increased, the apparent profits, small enough at best, would be changed into losses.

The following table shows the situation of the London County Council tramways at the end of the fiscal year 1910–1911 (The Municipal Year Book, 1912, page 618),1 when the debt was £9,455,500:

Capital charges amounted to £662,231, leaving net receipts amounting to £232,727, of which £129,229 was reserved for the renewal fund and £103,498 for the general reserve fund.

Results clearly prove that the London County Council is always operating at a loss. The report of the Highways Committee of the London County Council (see The Municipal Year Book, 1912, page 618) states that the tramway receipts for the year ending July 10, 1912, are £633,588, instead of £659,274, the figure for the preceding year, a relative decrease of £26,000 from the previous corresponding period.

The report declares that this decrease is owing to an increase in the competition of other methods of transportation. The tramways carry passengers only during two periods of the day, while the railway tubes and the motor omnibuses travel through crowded districts during the middle of the day. Therefore the committee demands the extension of its system upon these streets. It has submitted a preliminary plan which provides for an added expenditure of £600,000 ($2,922,000).

Last year the Highways and Improvements Committee proposed the construction of a tramway upon St. Paul's bridge, extending to the west end of Cheapside. The London County Council demanded that the bridge be used to connect the northern and southern tramway systems. The cost of the project was estimated at £1,631,200 ($7,943,900), to which must be added £350,000 ($1,704,500) demanded by the city for the enlargement of St. Paul's churchyard. The committee insisted upon a shallow underground tramway between the southern end of Cannon street and Cheapside.

The whole report and the plans that it includes reveal the mentality of these administrations. An enterprise is not successful. This unpleasant state of affairs is due to private competition. Then drive out private competition. The decrease in the receipts is not disquieting, so long as the expenses are increased. Consequently all sorts of extravagant plans are proposed.

Such being the financial results of the operation of the London County Council tramways, its partisans enumerated the following advantages (see The Municipal Year Book, 1912, page 619):

• a The relief of the tax rates from the profits of the enterprise.
• b Institution of all-night service.
• c Workmen's cars.
• d Rate reductions upon many lines. But, above all, they insist upon the advantages obtained by employees from:
• e Establishment of the 10-hour day for all employees.
• f One day's rest in seven. g Increase of salaries.
• h Furnishing free uniforms.
• i Annual vacations of six days with full pay.
• j Since 1909 the establishment of a conciliation board.

Whence we may legitimately draw the following conclusion: Municipal service must, above all, confer advantages on its employees. Such undertakings of right belong to them.

The Municipal Year Book, of 1912, publishes the following summary of the situation of the tramways and light railways in the United Kingdom, according to the latest reports of the Board of Trade:

The following table gives the figures for the tramways owned by private companies:

The losses reported on tramways operated by local governments in 1910–1911 affected the following 27 municipalities: Birkenhead, Blackburn, Bourne-mouth, Colchester, Darlington, Dover, East Ham, Edith, Ilkeston, Ipswich, Kilmarnock, Lancaster, Leith, Lincoln, Lowestoft, Maidstone, Nelson, Oldham, Perth, Pontypridd, Rawtenstall, Southport, Stalybridge, Hyde, Mossley, Dukinfield, Widen.

The above tables do not give the rates of depreciation. It is a pity that The Municipal Year Book has not included them. But, besides the 27 local governments which have reported their losses, there are no amounts recorded for depreciation and reserve for Derby, Halifax, Walthamstow, West Ham (in 1909–1910), Yarmouth.

In one of the best administered municipalities, Birmingham, the amount set aside for depreciation and reserve is £24,413 out of total receipts of £318,882, which is a little more than 7.6 per cent.1 At Glasgow it is £202,579 out of receipts amounting to £949,488, or more than 21 per cent. This difference between the two figures proves that the first is too small. The advocates of municipalization will not fail to point out the Glasgow figure, because it looks well and increases the average, but it is altogether exceptional.

[1]See H. Davies, The Cost of Municipal Trading.

[1]The Municipal Year Book for 1913 not having yet appeared, I must make use of the figures quoted in the edition of 1912.

[1]7.6 per cent. on revenue is approximately equivalent to 1.5 per cent. on capital investment.