SECTION XV. PROPOSALS FOR FIXING RATES BY RAILWAY COMMISSION— CONCILIATION COURTS.

One of the many proposals for fixing, or controlling rates was contained in a clause in the Railway and Canal Traffic Bill of last session. It was intended to confer on the Board of Trade the power at any time, “on the application either of a railway company, or of any Local or Harbour Board, any Council of a City or Borough, any representative County body which might hereafter be created, and Justices in Quarter Sessions assembled, any Public Local Authority which is now or might hereafter be established, any Association of Traders or Freighters, or any Chamber of Commerce or Agriculture, who should obtain a certificate from the Board of Trade that they were entitled to make such application, to revoke, amend or vary the maximum rates.” This would have been a totally new departure in legislation. Such statutes as the Railway and Canal Traffic Act of 1854, and the Regulation of Railways Act, 1873, exhibit an inclination on the part of Parliament to jealously limit the powers granted to the companies. The tendency of the Courts of Law has been to construe the Acts strictly against companies and give the public the benefit of all doubtful points.[90] But it had never before been supposed that the powers to charge the rates and tolls contained in the original Acts, under which the companies undertook the construction of the railways, could be indefinitely altered, as proposed in the above clause. No such recommendation was made by the Railway Rates Committee of 1882. After what took place in the discussion of the Bill, both in Parliament and out of it, and the announcement of the then Attorney General, “that no one contemplated a perpetually recurring revision,”—which the clause provided for—it is not probable that any such suggestion will again authoritatively be made.[91]

Another proposal of a somewhat similar character is, that the Railway Commissioners, or some other special tribunal, should fix the rates. Were a Court for the control of rates established with the consent of all concerned, there would remain the question on what principle are the rates to be framed? Are they to be according to equal mileage, or, if not, in what other manner? What better mode can be suggested than the past practice, which, as has been shewn, has been beneficial to the community? Nor is it easy to understand how any Court could fix all the incalculable number of rates, and hear and determine all the practical questions certain to arise. Even if a trifling proportion of the rates were fixed in this manner, and the task in those cases were performed, with reference to all the many circumstances now governing rates, complications and difficulties must arise, and the Court would be placed in a position of great, if not insurmountable, difficulty. So many anomalies must be authorised that it would be impracticable for the Court to decide consistently with precedents. In all probability the control would either become nominal, or the whole system would have to be recast. Nor must the serious loss of time by the staff of railways in attending to such inquiries, and the consequent diminution of the efficiency of their work in the actual regulation and conduct of railway traffic be lost sight of. The costliness of inquiries before such a Court is a secondary, but not an unimportant, matter. In the hope of obtaining reduced rates, or of compelling a company to raise the rates of a competitor in trade, or to raise the rates to and from competing ports, some traders and merchants, separately or combined, might risk the expense of applications to such a Court.[92] But the general interest could not be promoted by the creation of any such arbitrary and anomalous Court.

Reference is often made to the experience of the United States in regard to the supervision of railways as if it should be a guide to us. There each State may legislate with reference to the construction and regulation of its own railways. At first everything was done to facilitate their construction. They were proceeded with in advance of, or concurrently with, immigration and settlement. Many States have made large grants of land to railway companies. In some States a few individuals, from five upwards, may form themselves into a railway company, and under general laws construct railways between any two places, regardless of the wishes of others and the considerations which here form the subject of Parliamentary inquiry. No scale of maximum rates, as a rule, governs the charges for conveyance; and great variations in them are in fact made. Only, however, in recent times, when railways have become numerous and their extension is not so urgently needed, have State Legislatures interfered with their management.[93]

The expediency of establishing maximum rates has been discussed in some States. But another course has also been tried; Commissioners have been appointed for the purpose of fixing reasonable charges. Where maximum rates have been fixed, in no case, so far as can be ascertained, have the Legislature altered, or the Commissioners interfered with the powers conferred if the rates charged are within such maximum. Some of the Commissioners fixed rates on so unremunerative a basis as to defeat their object and to prevent the introduction of capital, and the construction of railways. The result was that in one State after a trial of about two years, the law establishing such a tribunal was hastily repealed.[94]

The rates charged in the United States are mainly governed by competition with water carriage, or between the companies themselves. Occasionally they are so reduced over large districts as to be totally unremunerative. As soon, however, as the struggle between competitors is ended, and an arrangement is arrived at, the rates are suddenly raised. The circumstances of England and the United States are so unlike that, even were those tribunals suited to the latter, no case would be made out for establishing here a Court armed with such powers. Here railway companies can make charges only within their statutory maxima; there, as a rule, no statutory maxima, or prohibitions of undue preference, similar to those enacted here, are known. Here no municipalities have largely subscribed to the capital of railways, no grants of public lands have been made to them, as have been freely done there.[95]

To legislation in Continental countries as to the fixing of rates, we only briefly refer; in Appendix III. are full details as to the law on this subject of Prussia and the German Empire. It may, however, be here observed that the Prussian General Railway Law of 1838 provided for a reduction of rates when the net profits exceeded 10 per cent.; that the concessions to private companies stipulate for the control of the Government over rates; but that, in recent concessions, greater freedom is accorded to the companies, which may, within certain maximum limits, modify rates at pleasure. Such legislation is well worthy of attention; only it may be suggested that it is not reasonable to pick out for commendation this or that provision without regard to its concomitants—to propose to adopt provisions to the disadvantage of railways, and to ignore those which recompense them.

In Germany exist District Consultative Councils or Conciliation Courts, which deal with all questions relating to conveyance of goods on railways, and with the application of existing tariffs and the introduction of new local tariffs. It has been stated that those Councils or Courts are of great practical utility. Whether this be so or not the circumstances under which Conciliation Boards are appointed in Germany are very dissimilar to those of the railways in this country. Their constitution is peculiar; similar elements do not exist here. These Boards are composed of representatives of the Government as workers of the railways and representatives of the traders as users of them. Both, however—the nominees of the Government and the traders—may be said to represent the owners (in reality—the public) of 85 per cent. of the lines, who are liable for any loss in working them. In this country neither the Government nor the traders are the owners.[96] Moreover, in Germany the representative of the Government which controls the working of the railways, has, in fact, the power of fixing any rate by his final decision, whatever may be the views of the traders or the Conciliation Boards. In the last resort the owner of the lines controls the rates.

Were such Councils established here their duties would not be so light as those which fall to them in Germany. There the questions to be considered must be few, the time occupied in deciding them short, owing to there being practically no competition, and to the great bulk of the rates being based on a mileage scale. Much more complex questions would arise here, much longer time must be taken up in deciding them in England, where rates are adapted to all the requirements of trade and competition in its many forms.

In Holland, Belgium, and France, railways have been constructed with, in some cases, considerable financial assistance from the Governments, and under concessions for certain periods. Not unnaturally or unreasonably the Governments have reserved the right to control the rates and charges to be made while a concession is in existence, or when it ends. It will be found, however, that when there is power to reduce the rates before the expiration of the concession, the State guarantees the dividend in the event of loss arising from the compulsory reduction. Such is the case in Holland. The Dutch Law (Article 29) provides that reductions in the tariff can at all times be ordered by the State. But if, in consequence of such reductions, the net gain of the company be diminished, compensation is to be paid out of the State Treasury, and any dispute as to the amount of compensation is decided by a Court of Justice. In no case, however, must the amount of compensation raise the net profits of the year or years for which it is demanded above 8 per cent. of the Company’s capital. Thus the right to control rates is part and parcel of a system wholly unlike our own. It exists in a country where the State has helped to construct, and to a very large extent actually constructed, railways. It is alien to this country, where capital for the whole of the railways has been provided by private individuals, on the faith of the powers to levy the tolls and rates fixed in their private Acts.

In the Railway and Canal Traffic Bill (1886) was also embodied a proposal to the effect that any person who was of opinion that a company was charging an unfair or unreasonable rate might make a complaint to the Board of Trade, who were to be entitled to call on the company for an explanation and to appoint one of their officers, or a competent person, to communicate with the company and the complainant, and to endeavour to settle the difference amicably between the parties. The Board of Trade were from time to time to submit to Parliament reports of the complaints so made, the results of their proceedings, and such observations as they should think fit. The effect of this provision would have been startling. Even where a rate was within a company’s powers—although undue preference was not alleged—at the instance of a trader desirous of obtaining a reduced rate which had been refused by a company and believing that either his own circumstances or those of other traders entitled him to communicate with the Board of Trade, the railway company would be called upon to prove to the Board of Trade that the claim of the trader ought not to be granted. It would be, in effect, litigation made easy and cheap, whether the complaint was good or bad. The President, Vice-President, Secretary, or Assistant-Secretary of the Board of Trade could not spare the time necessary to master the numerous difficult questions and details as to the rates.[97] Notwithstanding the great ability with which that department is conducted, these officials could not deal with such questions in the same way or within the same time as the traders and the representatives of the companies are able. The companies would probably be burthened with correspondence and discussions on matters already fully gone into in negotiation. The discussion would be necessarily carried on through subordinates or nominees of the Board of Trade, who, it is not presumptuous to say, would be neither interested in, nor specially trained to deal with, such questions. Suppose that the representatives of the Board of Trade and the railway companies disagreed as to the necessity or reasonableness of a reduction in rates, the former would have no authority to compel the companies to comply with their views. Would not the result probably be a cry that Parliamentary powers should be conferred on the Board of Trade to enforce their conclusions? Such a policy would in the end place the railway companies of the country, whose capital has entirely been raised by private enterprise, in a worse position than the railway companies in Holland where the State has done so much for them, or in France, where it has guaranteed the dividends.

When we are invited to place in the hands of a tribunal the control of the rates, it is expedient to note the difficulties which the Railway Commissioners seem to have felt in dealing with the various questions raised before them, and the manner in which they have dealt with them.

In determining under the Traffic Act questions of alleged undue preference, they have been obliged to express their opinion on the reasonableness of particular rates. As to the legal correctness of their decisions, nothing need here be said; for the present purpose it may be assumed that they are open to no legal exception, and we fully recognise the ability and care which they manifest. Only their economical effects are here considered. There would be no difficulty in showing that they have acted upon principles, so far as they have acted upon any, which have not merely not been sanctioned, but have been condemned, by every Royal Commission or Select Committee which has inquired into the subject, and by almost every economist of eminence. On the part of the Commissioners there have been—not unnaturally—some waverings in opinion. But on the whole, they appear to have attempted to frame rates according to cost of service; and they appear not to admit that the existence of competition is a reason for varying them. Now, in the first place they apply—it may be added, necessarily apply—the cost of service principle in an imperfect fashion. They deal only with undue preference in regard to the same or very similar articles. They do not say, what consistent adherence to the theory would compel them to say, that a ton of coals and a ton of tin ingots must be carried at much the same rate; they are bound by the existing classification, which forbids this. Occasionally their decisions are indeed curiously inconsistent in many respects, as was probably inevitable, where they were called upon to face the commercial results which would have followed a too rigid adherence to some of the principles by which they felt themselves bound.[98] In the case of the Nitshill and Lesmahagow Coal Company v. Caledonian Railway Company,[99] the defendant company claimed to charge more for carrying cannel coal, which, it was alleged, cost 38s. a ton, than they charged for carrying splint, which cost 15s. 6d. On the principle on which the classifications in most special Acts were framed, this would be reasonable; the more valuable article could bear more, and ought to pay more. But the Railway Commissioners decided differently. “As the quality of coal does not affect the cost of carriage to the railway company,” they said, “we are of opinion that the two kinds of coal ought to receive the same treatment.” If this principle had been carried out since the beginning of railways, if rates had been settled without regard to the value of merchandise, the prosperity of many districts and industries would never have been developed. In the second place, the cost of carriage is, inevitably, sometimes guessed at rather than calculated. We have already stated the nice calculations which must be entered into in order to determine the exact cost of carriage; calculations in which it is practically impossible to attain accuracy. Many elements in cost, the Commissioners cannot accurately measure; the data do not exist. In the third place, the effect of their later decisions is to exclude, practically, if not theoretically, competition from the considerations to be taken into account. This is, not only for the reasons already stated, contrary to sound commercial principles; it is contrary to the language of the early decisions of the Court of Common Pleas, which distinctly recognised competition as rightly taken into account in fixing rates. In Garton v. Bristol & Exeter Railway Co. (1 N. & M. 1859, p. 218), for example, the Court of Common Pleas decided, among other reasons against the validity of a certain charge, because, in the words of Byles, J., “it is not shown that it is rendered necessary for the purpose of meeting and overcoming competition”.[100] The early judgments of the Railway Commissioners themselves recognised the right to take into account the existence of competition. In Foreman v. Great Eastern Railway Co., decided in 1875 (2 N. & M. 202), the point in dispute was the validity of a scale of charges for the carriage of coal from Peterborough to Norwich and Great Yarmouth and intermediate stations. The Great Eastern Company were alleged to give an undue preference to coal consigned to such stations, as compared with the carriage of sea-borne coal from Great Yarmouth to Norwich and the stations between it and Peterborough. The Commissioners observed: “Nor does the Traffic Act prevent a railway company from having special rates of charges to a terminus to which traffic can be carried by other routes, or other modes of carriage with which theirs is in competition,” a dictum inconsistent with the view “that cost of service is the necessary measure of rates.” In a case decided the same year, Thompson v. London and North Western Railway Co., 2 N. & M. (1875) 115, the Commissioners speak dubiously. They observe with respect to the argument that “the Traffic Act prohibits only undue advantages, and that an advantage given by a railway company to obtain traffic for which it competes with another railway company is not undue” (p. 120). “Such a proposition cannot, in our opinion, be laid down unreservedly. It may be true in certain circumstances; it would not be so in others, and what degree of favour can be lawfully shown to some person to the prejudice of others under the pressure of competition can only be decided in any case that arises by reference to its special circumstances.”[101] In still later judgments there is a faint recognition of the fact that the existence of competition ought to be taken into account; e.g., in Richardson v. Midland Railway Company, decided in 1881 (4 N. and M. 1) the Commissioners say: “The difference (between the Burton and Newark rates) or part of it, may possibly be required by the route from the same district, not being the same all the way to the two places, and by the separate portions of line passed over being more costly to work or construct in the one case than in the other; or, again, may be required by a competition for the conveyance of the particular traffic between the two termini, existing in one case but not in the other. They proceed to speak of “due allowance for such causes of difference,” which implies that allowance must be made for both of such causes. But in the Broughton Coal Company’s case (4 N. and M. p. 191, 1883) the Commissioners use somewhat different language. They observe that “if goods of the same kind are carried to the same destination over the same railway for distances that are not the same, and the gross charge from the intermediate distance is as great as from the more distant one, there is a preference of one traffic over the other within the meaning of the Traffic Act of 1854; and that it is not sufficient to rebut this presumption to show that the charge for the longer distance has been reduced to meet a competition from another route.” Lately the Commissioners have, to say the least, lost sight of the element of competition in determining rates; and in all the applications to them, there is no clear instance in which they have found the circumstances in which it ought, in their opinion, to operate.

Among the multifarious complaints against railway companies is one to the effect that companies, instead of competing with and underbidding each other, combine to charge equal rates. This is an illustration of the curious inconsistencies of some of those who criticise the working of railways. Such a practice would be, as will be seen in the next chapter, opposed to the ideas of others who urge that rates should be based on scientific and uniform principles. Such competition, too, would inevitably lead to valid grounds for complaints, in the opinion of others, of undue preference in contravention of the Railway and Canal Traffic Act of 1854. The fact is, the practice has been tried and abandoned. In the days of road carriers, competition in quoting low rates generally ended in the submission or ruin of one of the parties. Here, and in the United States, experience shews that all such competition on the part of railways must end in combination. However severe the contest may be, and however great the losses in carrying it on, each of the railways continues to exist; they do not disappear like private traders engaged in a disastrous war of competition; and in the end they come to terms. In thus acting, they only do what is done in other industries. In the principal trades of the country are associations which arrange the prices of their products. Colliery proprietors, for example, agree as to the price of coal. Although the hardware merchants seldom vary their price lists, they agree from time to time as to the rate of discount to be allowed. The steel rail manufacturers of Germany, Belgium, England, and Scotland, had recently an arrangement regulating, if not the proportion to be produced by each country and district, the price at which rails were to be sold.