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 XI

OPERATION OF GAS AND ELECTRICITY IN THE UNITED KINGDOM

1. In Major Leonard Darwin's remarkable study, entitled Municipal Trade, I find the following figures, indicating the number of British municipalities which have undertaken to supply gas. During the period 1820–1839 only three municipal plants appear. During the period 1870–1879 thirty-eight municipalities adopted the system, and from 1890 to 1892—fifteen. Not until the gas industry had been firmly established by private companies did municipalities take a hand in the game, having then at their disposal the labor, buildings, equipment, mains, and consumers already provided for them by their competitors. Nor was this change of proprietorship always attended by immediately disastrous results. In such cases, however, a disaster would have been a miracle.

An incident relating to Manchester, which has supplied gas since 1824, betrays the sang-froid with which municipal authorities are capable of treating certain financial questions. On the occasion of a royal visit to that city, in 1905, the gas reserve fund was called upon to provide £8,897 ($43,300) to defray the expense of the king's entertainment.

A Birmingham municipal gas plant was the grand municipal ideal of Joseph Chamberlain. In 1874 he bought out the two existing companies for £2,000,000 ($9,740,000). The measure was regarded at the time as a purely fiscal one. In 1905 Birmingham was charging 2s 6d per 1,000 cubic feet of gas, when a private company at Sheffield was charging 1s 5d.

Vince estimates that the favors granted to employees represent an expense to British taxpayers equivalent to an increase in taxation of 4 shillings on the pound, or 20 per cent.1

Sixty-three per cent., or almost two-thirds of the public gas lighting service of the United Kingdom, is furnished by private companies; the proportion is the same for private gas consumption. In England and in Wales the proportion of gas furnished by private companies is 69 per cent. In the United Kingdom the consumers supplied by private companies represent 59 per cent.; in England and Wales 65 per cent.

The capital of the companies has increased £2,017,000 ($9,822,790), while that of local authorities has decreased slightly. The gross receipts of the companies are a little higher than those of the local authorities, but the net returns are less. It is easy to grasp the reason for this. In the furnishing of gas local authorities have certain privileges not accorded private companies. The price of gas furnished by private companies is 2s 9d, by local authorities 2s 6d. Yet the local authorities acknowledge a net revenue of 9 ¾ per cent., while the companies show only 5 5/6 per cent.

According to a parliamentary report of January, 1912, the capital invested in gas works in the United Kingdom amounts to £134,000,000 ($653,000,000). The following table summarizes the accounts and operations of these gas undertakings:

We have no detailed report permitting us to follow up the comparison between the results of operation by private companies and by local authorities. But, in any event, although municipalities have been furnishing gas in Manchester since 1824, and in Beverly and Carlisle since 1850, their example has not been followed generally, since private companies are still supplying gas to two-thirds of the population.

2. The first electric installations were established at Eastbourne and Hastings in 1882, and in London in 1885. Bradford created the first municipal plant in 1889.

An act of 1882 authorized local authorities to buy up companies at the end of twenty-one years, and afterward, at the end of successive seven-year periods. In determining the purchase price only the market value of land, equipment, material, etc., was to be taken into account. No other compensation was to be paid. The object of the act was to prevent the construction of any more private plants.

The local governments were naturally anxious to protect their gas plants against any possible competition. The testimony of Mr. S. Chisholm, provost of Glasgow, before the committee of 1900, offers a typical example of this policy. Municipalities wanted authority to construct electric plants only in order to prevent private companies from doing so.

The City of York obtained a provisional order in 1892, but it did not supply electricity until 1900. Birkenhead waited from 1886 until 1900; Bristol, from 1883 to 1893; Greenwich, from 1883 to 1889. Four years appeared to be the average delay, according to the table submitted by Campbell Swinton, which includes a list of fifty-four municipal electric lighting orders. The local authorities were evidently more anxious to prevent action by others than to enter into the business themselves.

In order to protect the interests of its gas plant Birmingham required, as the condition of its approval of the Birmingham electric supply company in 1890, that the latter should supply only the principal streets of the city. In 1898, however, the company being prosperous, the city decided to purchase.1 At the time the negotiation was completed the market price of each share was £10 10s 0d, a figure which would naturally form the basis of the purchase price. The municipality paid £420,000 ($2,045,000). Lost taxes and sinking fund payments amounted from the beginning to £17,000 ($82,800); that is to say, to £4,000 ($19,000) more than the profits realized by the company in 1897. In March, 1901, after fifteen months of operation, the deficit was £4,175 ($20,332); in 1902–1903 it had reached £4,813 ($23,239). The number of consumers was 5,000, out of a population of from 600,000 to 700,000; and this small number was being supplied at the expense of the whole body of taxpayers.

It is not enough for an industry to be municipalized in order to bring in customers. Bath1 bought out, for £24,500 ($119,315) an enterprise which had cost its founders £43,000 ($209,400); but municipalization did not furnish it with consumers. In 1900–1902 the plants upon which the municipality had expended £7,800 ($38,000) were out of use, and the engineer estimated the sum necessary to put them back into condition at £70,000 ($341,000). The town found no company willing to take up the business. It therefore continued to operate, but at a loss. In 1909–1910 it had lost £1,335 ($6,500) and in 1910–1911 £157 ($764).

A local government board return has been devoted to accounts of municipal enterprises during the four years from 1898 to March 31, 1902. We give below the results of the gas and electrical enterprises to March 31, 1902:

Gas, then, yields a profit. The gross profit was £1,289,000, or 5.4 per cent. on the capital invested. Any municipality might hope to obtain this gross profit.

But if we deduct the amount necessary to pay off the capital and pay interest, we would require a net revenue of 4.8 per cent. on the capital invested. This is allowing 3¼ per cent. for interest and an amortization period of 32 years. Then, if 4.8 per cent. be deducted from the 5.4 per cent. of gross profits, we find that the profit to the municipalities is about 0.6 per cent. Thus, the municipalities can reckon that they make a profit of a little more than 0.5 per cent. Such are the dazzling “results of numberless experiments” in England.

But Major Darwin shows that an interest rate of 3¼ per cent. is very low, and that it has a tendency to increase. It is true that the period of amortization can be lengthened, but a long period of amortization would be only an added burden.

Further, Major Darwin makes a relative calculation, based upon the gross profit of municipal operations of gas plants for several periods.

In these calculations the gross profit for the last period is lower than that during the years 1898–1902. Major Darwin therefore concludes:

“If we consider that local governments will have to pay 4.8 per cent. during the 32 years of amortization of capital, it can then be said that the profits on municipal operation of gas plants will vary from zero to a trifle more than ½ per cent. at the maximum. In any event, the later municipalizations of gas are less profitable than those which preceded them.”

On March 31, 1904, out of 190 municipal electric enterprises 116 claimed a profit, while 74 reported losses amounting to £80,504 ($392,054). The last report of Municipal Trade is dated June 2, 1909, and it includes only a few Scotch cities. It gives no details regarding capital, and only the annual receipts and expenses. In Edinburgh, in 1902–1903, the excess of gas receipts was £3,303; in 1903–1904 the deficit was £3,397; in 1904–1905 the excess was £5,965, but it fell again in 1905–1906 to £1,460.

For electricity the excess of receipts was £14,532 in 1902–1903; in 1903–1904, £23,997; in 1904–1905, £21,143; in 1905–1906, £16,539.

In Glasgow excesses of receipts occur regularly, but they are subject to extreme variations.

The municipalities which operate electrical plants have an excellent customer in their tramways, to the operation of which electricity was first applied in 1885.

According to the Municipal Year Book for 1912 local authorities to the number of 140, having obtained from the Board of Trade the “orders” provided for by acts of 1882, 1888, 1889, and 1909, turned them over to private companies, whereas only 20 municipalities had made use of the privilege to buy out companies and substitute public for private operation.

In London the City Corporation, the Camberwell Borough Council, and the Lambeth Borough Council have the right to buy existing plants in 1927, and the London County Council in 1931.

In 1910–1911 the following 47 local authorities, which were operating 16 electrical installations, were doing so at a loss:

Acton, Alloa, Bangor, Barking Town, Barnstaple, Bath, Batley, Beckenham, Bury St. Edmunds, Buxton, Cambuslang, Clacton, Cleckheaton, Dorking, Dudley, Elland, Farnsworth, Frome, Gillingham, Gravesend, Hastings, Hereford, Heywood, Hove (Aldrington), Kendal, Kingston-on-Thames, Kirkcaldy, Leek, Loughborough, Maidstone, Middleton, Morley, Paisley, Rathmines, Redditch, Rhyl, Stalybridge, Hyde, Mossley, Dukinfield, Surbiton, Todmorden, Torquay, Wakefield, Weymouth, Whitby, Whitehaven, Wigan, Wishaw, Worcester.

A number of local authorities were operating at a loss during the preceding year.

[1]Vince, History of the Corporation of Birmingham, 1902.

[1]Raymond Boverat, Le Socialisme Municipal en Angleterre et Ses Résultats, p. 190.

[1]The Times (London), September 5, 1902.