How to Nationalise Railroads (S628: 24 September 1906)

    As the Trade Union Congress has unanimously requested the Labour Party to introduce a Bill with the object of nationalising all railroads, canals, mines, and minerals, it is evident that this great subject has now come within the sphere of practical politics. It is, therefore, of the greatest importance that the ways and means by which such a gigantic transfer may be effected should be very carefully considered, before we are committed to any definite scheme of operations which may endanger its success, or which, if successful, may be opposed to the public interest.

    Having for many years given careful consideration of the various methods that have been suggested for acquiring these and other properties the possession of which is of vital interest to the nation, I propose now to describe, very briefly, that which I consider to be in every way the best.

    In all previous cases of the transfer of what are, or ought to be, essentially public services, from private individuals or companies to local authorities or to the Government, there has been a severe struggle between the two parties concerned--as buyer and seller--regarding the mode of valuation of the property, the purchase-money to be paid, or the compensation to be given; and in this struggle the sellers have always succeeded in obtaining for their property very much more than it was worth, to the great loss and often to the permanent injury of the public. These facts are notorious, and if the same methods are applied in the case of the railroads and mines, the same scandals will be repeated on a still larger scale, so as largely to discount any benefit the public would derive from the transfer.

    I think, therefore, that the great majority of advanced thinkers will be with me in the determination that this great blunder must not and shall not be repeated; and the main purpose of this article is to suggest a method of dealing with the problem which shall entirely avoid any struggle or bargain of the nature above referred to. By the method I propose there will be no sale or purchase, no valuation or compensation; yet the just property rights of existing shareholders or owners will be fully recognised, while at the same time the public will derive the utmost possible benefit from the transaction. The plan by which this result is to be attained will be very simple when once the general principles involved are accepted and acted on; and in order to explain the process as clearly as possible I will now show how it would work in the case of the railways.

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    The Act establishing Nationalisation will be based upon the fact that the management of railway traffic by antagonistic companies is necessarily wasteful, and is in many ways opposed to the interests and convenience of the public. It will, therefore, enact that on a certain day the management of all the railways will be taken over by a Government department under a Minister responsible to Parliament, and the whole combined system will be reorganized with the object of giving to the public the best possible service and accommodation. The change would not necessarily imply the discharge of a single official or servant of the existing companies, but probably a considerable addition to their number. This first step in the process of Nationalisation would be a simple transfer of the management, not the purchase, of a property. The question of capital value would not arise.

    Coming now to the interests of the shareholders in the several companies and how they shall be dealt with, we reach the essential feature of the present scheme. Without entering into minute details the method proposed to be adopted would be somewhat as follows. The interest on debentures or dividend on shares will be averaged for a period of three, five, or seven years, dependent on the stability of the traffic, and on the need of repairs or replacement of the permanent way or rolling stock in the case of each system.

    A fair average interest for each class of shareholder in the respective lines will thus be determined, and will be paid to each shareholder, as an annuity for his life and also to his widow for her life. In the case of there being orphan children the payment will be continued till they reach the age of twenty-one, in order to assist in providing education and industrial training. Further, in cases of special necessity, as when other relatives than children were dependent on the shareholder, the interest would continue to be paid to them, the principle being adopted that not only the shareholder himself should feel that his own income from these investments was absolutely secure for his life, but also that no relatives or dependents in whose welfare he felt a strong personal interest should be deprived of what he would have left them whenever it was necessary to save them from destitution. When these various claims were satisfied the annuity would cease to be paid.

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    No doubt some thoughtless people will raise the parrot-cry of confiscation, on the ground that a terminable annuity is of less capital value than perpetual or permanent one. But it is evident that no railway securities are really permanent, while they are liable not only to fluctuation, but to complete suspension in case of accident or mismanagement. The absolute guarantee of a steady income both for the holder's life and for the subsequent benefit of his family and dependents must be considered to be a full equivalent for the sentimental value of benefiting persons or institutions, other than his own family, at some indefinite future time. In addition to this consideration, every shareholder would himself benefit by the great improvement in the general railway service which public management and the co-ordination of the whole railway service of the kingdom would bring about, involving, as it probably would, some reduction in the cost of many articles of daily use.

    By the adoption of the mode of transfer here suggested both of the railroads and of canals, mines and minerals, the nation would, in the course of about half a century, obtain full possession of a great mass of properties which should never have been allowed to fall into the possession of individuals, to the enormous advantage of the public. In this way, and in this way only, can we be strictly just to the living while ceasing to transmit the cruel burden of our debts, our errors, and our follies to our descendants.

    As some of your readers may wish to see the principles on which my proposal is based more fully set forth I will refer them to two essays in my "Studies Scientific and Social" (Vol. II). One is entitled "Interest-bearing Funds: Injurious and Unjust"; the other is headed "True Individualism the Essential Preliminary of a Real Social Advance." The first bears upon the more special problem here discussed; the second shows how the "Law of Social Justice," established by Herbert Spencer, necessarily implies the injustice of permitting unrestricted inheritance of wealth--an inference which he himself strangely overlooked.

(To the Editor of "The Daily News.")

    Sir,--Will you allow me to make a few remarks on the various suggestions of my critics?

    I will deal first with Mr. W. Bennett, because his plan is based upon a common fallacy in dealing with similar questions. He proposes that the Government shall issue legal tender notes of the full market value of the railway shares, etc., with which to pay the shareholders in full, after the plan adopted in the case of the Guernsey Market. This is an excellent method in its right place and with proper limitations, and I have myself argued in favour of it for the purpose of enabling local authorities to execute reproductive public works without the cost of a loan. But to pay the whole body of railway shareholders in this way would entail upon them a considerable loss. The majority of private persons hold their shares for the sake of the income derived from them, and when paid the capital value, whether in notes or gold, they would at once seek new investments from which to obtain an income of the same amount and equally safe. But the number of such safe investments is limited, and the sudden demand for such, to the amount of about a thousand millions (and our railway capital is considerably more than this) would immediately raise the price of such securities. The result would be that although all the shareholders were paid the full value of their shares, they could not obtain for the money an equally large and equally safe income to that they now possess. The anxiety and distress caused to many of the poorer of these shareholders when they found that although paid in full their income would be diminished, perhaps considerably, would be very great, and I feel sure that the large majority of them would much prefer the perfectly secure family life annuity which the Government would guarantee them if my suggestion be adopted.

    The same general considerations apply to Mr. C. E. Smith's plan, inasmuch as he also proposes paying "the full market value of the securities in cash"; while his alternative proposal of giving Government securities of equal value in exchange, and then raising an equal amount by "loans on terminable annuities" to redeem these securities, the loss on the transaction being covered by "a graduated income tax and differential death duties," involve a series of complex financial operations on a gigantic scale which might benefit great capitalists, but would almost certainly result in loss to the public. The writer's remark about "penalising one set of capitalists and favouring another" is quite beside the question at issue, since the method I propose is equally applicable to the acquisition for great public purposes of all kinds of property. But, in this country at all events, we cannot do everything at once, and the problem now being discussed is how best to nationalise the railways in the interest of all parties concerned.

    There remains the question, raised by "Carshalton," of how to deal with the great masses of railway shares held by insurance and other public companies, and their case no doubt demands special and liberal treatment, but on the same general principle that is applied to individuals. It is clear that these companies would suffer almost as much as individuals if they were all paid off in full, and had at once to seek fresh investments; and they will certainly not expect to have allotted to them Government funds bringing in the same income as do the railways, and therefore of much higher value. A fair and even very liberal mode of treatment seems to be as follows. The whole body of policy-holders and shareholders at the time of passing the Act will be taken as representing a single shareholder, and the "life" of this shareholder will be held to continue till the decease of the last survivor of them, when the shares, as in all other cases, will lapse to the Government. If the company forms a sinking fund by investing annually the difference between the interest received on these railway shares and that from any other Government stock, or even half or two-thirds of this difference, the capital would be replaced during the 70 or 75 years of the possible "life" of the company as already explained. But even if they do not do this, none of the persons interested when the Act is passed will suffer the least pecuniary loss.

    I think I have now proved that the method of railway nationalisation which I have suggested, while very favourable to the interests of the whole community, is also more beneficial to existing shareholders than any of the alternative proposals. It also has the advantage of being exceedingly simple and direct, producing the minimum of disturbance to financial and general interests. To the enormous body of small shareholders it offers security to themselves and family with no disturbance or break in their annual income. I therefore confidently submit it to the consideration of those on whom will devolve the responsibility of drafting the proposed Railway Nationalisation Bill.--Yours, etc., Alfred R. Wallace. Broadstone, Sept. 27.

(To the Editor of "The Daily News.")

    Sir,--Mr. W. T. Fox's proposal (in your Friday's issue) is the least advantageous and the most unjust of any yet proposed. He actually considers it a good thing for the Government during a whole century to pay the railway shareholders and their successors a higher rate of interest than they obtain now, rendering improvements more difficult during the whole of that period, in order that in the year 2010, or thereabouts, the whole population may suddenly be able to travel at the cost of mere working expenses! In other words, the railway service is to be crippled for a century in order that millions of people now unborn are to receive dividends they have never earned!

    The enormous advantage of my plan is that, owing to the numerous deaths annually of shareholders with no direct heirs, a continually increasing revenue will accrue from the very first, so that the great majority of people now living will obtain the benefit not only of improved service due to a single management, but to lower and lower fares and rates due to the yearly diminishing amount of dividends payable.

    And we are to give up all this advantage and this great motive power urging us to the reform in order to carry out the utterly immoral and unjust principle of compelling millions of unborn travellers to pay higher fares for the benefit of other millions of unborn travellers who have themselves done nothing to earn it or deserve it. Mr. Fox considers this proceeding to be honest, and, therefore, beneficial. I maintain that it is fundamentally dishonest, and, like all dishonesty, is injurious to everyone concerned in it.--Yours, etc., A. R. Wallace. Broadstone, Wimborne, Sept. 28.