A Plea for Liberty: An Argument Against Socialism and Socialistic Legislation

Had there been any precedent for such legislation affecting any similar industry? Yes, the Corporations said, the Tramways Act of 1870. And, in fact the forty-third section of that Act is substantially in the same terms as this section. But were the conditions attending the initiation and the working of the two undertakings in any way analogous? Compare them. The laying of a tramway in any street practically means the suspension for the time being of the traffic of that street; and when laid the rails occupy a large portion of the
surface of the street, to the great detriment, and permanently so, of all other traffic. Electric conductors, on the other hand, would be laid in narrow trenches under or near the footways, involving no interference with the traffic of the streets, and little with that of the pavements, immediate or prospective. The Tramway Company would enjoy during their twenty-one years’ tenure an unquestioned monopoly; the Electric Company would have to reckon with possible competitors. Again, the Tramway Company on making their road and running their cars, might reasonably hope for an immediately remunerative business; no educating process is needed to induce a man to try a penny ride on a tram-car. Widely different would be the conditions attending the successful introduction of electric lighting. The prejudice of habit, the fear of ‘shock,’ of fire, of failure in the supply, the great initial expense and inconvenience of ‘installing’ the necessary wires and lamps, to bring into the house a light which, beautiful and pure as it might be, would after all cost more than the light already in possession—all these difficulties would have to be slowly and painfully overcome, and would necessarily postpone to a distant date anything like a general use of the new illuminant. If this be so, it follows that even with an indefinite tenure the profits on the necessarily large capital of an Electric Supply Company would certainly be represented during, say, the first two years, by 0, and during a further two or three years, at least, by a very modest figure indeed. But a tenure of only twenty-one years, terminable by the purchase of the undertaking at its mere structural value, would seriously endanger the company’s capacity to earn any dividend at all. This point will be best illustrated by a quotation from a recent article
*119 in
The Times—

The amount that would be refunded to the company by the sale of their undertaking must of necessity represent but an infinitesimal part of the total capital that would have been spent in the building up of the business. This deficiency must be provided for somehow. A sinking fund, large in proportion to the shortness of the tenure, must be set aside out of income for the reduction of capital. The larger the sinking fund the higher must the charge be for electricity, the more disadvantageously must electric light compete with its cheaper rival, gas, and the more restricted, in consequence, must be the area of possible supply…. The injury would extend to the ratepayer whose ‘interests’ are to be so jealously guarded. He would suffer, too, by paying an unnecessarily high price for the electricity he would consume.

But the damaging effect of legislation of this character upon the development of electrical enterprise does not stop here. To quote again from the
Times’ article—

There is another consideration and a very important one. Nobody supposes that the last word has been said upon the question of dynamic machinery. Electrical science will probably stride onward, to discovery, to improvement. Can it be expected that a company which, on arriving at mere maturity has to look only for extinction; can it be expected that such a company would be eager, especially during the last few years of its life, to adopt improved methods of supply? Who would supply the capital for the purpose? It may be answered that an arbitrator would be bound to take into his consideration, in awarding the price of the undertaking, the greater suitability of the new methods for the purpose of the undertaking. Possibly; but would he award anything at all for the old and discarded machinery—machinery, it must be remembered, which would still have served to earn dividends? Here would be a dead loss. Thus a short tenure would have also a tendency to discourage invention.

With such obvious differences in the conditions incident to the development of the two industries, the legislation affecting tramway enterprise was still referred to again and again by representatives of local authorities before the Committee upon the Bill, as a precedent that ought to be followed in dealing with the subject of electrical distribution. It
was followed, as we have seen. But it was followed, with a difference of the highest importance, to which attention has not yet been drawn. Section 19 of the Tramways Act expressly provided that notwithstanding the statutory right of the local authority to make, or to compulsorily purchase, a tramway, ‘nothing in this Act contained shall authorise any local authority to run carriages upon such tramway, and to demand and take tolls and charges in respect of the use of such carriages.’ They might devote it to gratuitous use of the townsfolk, they might lease it to a company or an individual, but they could not themselves work it for profit. It is more than doubtful whether they have power to purchase the rolling-stock at all. So that, as Sir Frederick Bramwell remarked to the Committee, ‘There would be nothing to prevent the company who had enjoyed the tramway up to the time of the compulsory purchase, from being the persons to offer themselves as lessees, with the very reasonable prospect that they would be taken, knowing more about it, and having everything ready,’—and this, although the tramway might have been a very profitable concern.

Thus it will be plainly seen that the Electric Lighting Act inaugurated a new principle in industrial legislation. It gave to municipal bodies, for the first time (and with every incentive to exercise it), the right to confiscate for the general profit, without compensation, a business created and developed by private enterprise.

Four years after, in 1886, three Bills proposing ‘to amend the Electric Lighting Act, 1882,’ were introduced into the House of Lords. No. 1 (Lord Rayleigh’s Bill) proposed ‘to place electric lighting undertakings in the same position as gas undertakings, but as regards privileges and obligations’; thus abandoning frankly the very principle—the confiscating principle, as it may fairly be called—of the previous Act. By this Bill a standard price for the supply of electricity, and a standard dividend, were to be fixed; these were to be subject to variation on the well-known principle of the sliding scale, as now applied to the prices and dividends of gas companies. Any increase of capital beyond that set forth as the company’s authorised capital in the provisional order, was to be offered for public tender. The undertaking could be purchased only on such terms as might be agreed upon between the supplying company and the local authority. No. 2 (Lord Ashford’s Bill), while retaining for local authorities the compulsory purchase power, extended the tenure to forty-one years, and provided for the sale of the undertaking as a
going concern. Of these two Bills the first, as placing electric companies on an equal footing with gas companies, was the fairest, both to the new industry and to the public, and the most consistent with all previous legislation affecting similar undertakings. Finally, No. 3 (the Government Bill) proposed simply to extend to thirty years, or perhaps longer, the tenure authorised by the previous Act; the terms of purchase, compulsory and confiscatory, being retained unaltered. The three Bills were committed to a Select Committee of the House of Lords, before whom a whole crowd of witnesses again appeared, to support or to oppose, as their views and interests might direct, the various proposal to amend the Act of 1882.

One thing was clear and indisputable; that Act had failed, utterly failed, as we have seen it was bound to do, to facilitate the supply of electricity. Of the fifty-five provisional orders granted to over-sanguine Electric Light Companies in 1883, only one (the Birmingham Order, under which nothing had been done) remained in force. Having legislated with the sole idea of preventing a possible future evil, Parliament had fully succeeded in making impossible the attainment of any present good. But the Corporations to whom such facilities had been granted by Parliament, who had some of them also obtained provisional orders and private Acts, and for whom confiscatory purchase clauses did not exist, what had they done to help on the development of electric supply? Nothing. Why
should they pull the chestnuts out of the fire, when the private capitalist had been ordained to do it for them? Theirs was naturally enough a policy of masterly inactivity. So it was that in 1886 the only central electric supply stations to be found in the whole kingdom (those at Eastbourne, at Brighton—of very limited proportions—and at the Grosvenor Gallery, in London) distributed their electricity by means of overhead conductors, and without statutory powers of any sort. To explain this fact the Corporation representatives talked vaguely, and—may it be said?—ignorantly, of the ‘engineering difficulties’ which, along with the reaction from the wild speculation in electrical securities, had stopped the growth of the industry. To this speculation and its disastrous effect, reference has already been made in a previous part of this paper. It probably would have acted prejudicially upon the investing public though only for a short time; investors soon recover their equanimity in presence of even a reasonably good opening for the profitable employment of their capital. But they are largely influenced by the opinions of their financial advisers; and these gentlemen said unanimously, ‘Don’t touch anything electrical under the Act of 1882; it won’t work.’ The ‘engineering difficulty’ question was all moonshine. On the continent and in America, where electrical distribution was no better understood than in England, almost every large town had, as a matter of course, its central distributing station. If there, why not here? Sir Frederick Bramwell, Professor George Forbes, and Mr. Preece, all gave evidence to this effect. They also gave evidence upon another point of the greatest importance in this connexion. It was this. In neither of the countries referred to had the legislature made any attempt to restrict the free action of private enterprise. The municipal bodies prescribed regulations for the placing of electric conductors, &c.; they in no case proposed at any time to confiscate to their own use the business that might be created. Who could gainsay the practical illustration thus afforded of the paralyzing effect of the new legislation?

Well, the Act must be amended. But, again, in what direction? The financial witnesses—Sir John Lubbock, Mr. Hucks Gibbs, the late Mr. Lionel Cohen, and others—strongly urged the abandonment of the confiscatory nature of the purchase provisions. Only Bill No. 1 or No. 2, they said, would attract capital; a mere extension of tenure on the old lines would be futile. The principle was a vicious one, and would fail again, as it had already failed. The Corporations vehemently opposed this; any amendment to the Act of 1882 should, they said, continue to recognise both the right of compulsory purchase, and the sale of the business at the market value of the plant.

When, in 1888, the comparative cessation of the hubbub over the General Election and the Irish question again permitted attention to electrical interests, it was found that the Electric Lighting Act, 1888, did, in fact, amend the previous Act in the direction clamoured for by the Corporations. Section 2 extended the tenure to forty-two years, and the optional period thereafter to ten years; the purchasing conditions, with one apparently trifling exception, remaining unaltered. This exception consisted in the insertion of a provision that, in valuing the buildings, works, &c., ‘due regard’ shall be had ‘to the circumstance that they are in such a position as to be ready for immediate working.’ This is certain in favour of the seller what extent it is so, time and occasion alone can show. Section 3 provided that the Board of Trade might, if they thought fit, vary the terms upon which an undertaker might be required to sell, ‘in such manner as may have been agreed upon between such local authority and the undertakers.’ But to balance the concession made by Section 2 to that marauder the private capitalist (without whom it seemed that after all electrical distribution would never come to be an accomplished fact), it was provided by Section 1, that no provisional order should be granted by the Board of Trade, except with the consent of the local authority interested, unless the Board of Trade should be of opinion that, having regard to all the circumstances of the case, such consent ought to be dispensed with, in which case they might dispense with it accordingly.

These provisions have been in force for two years. It is somewhat early perhaps to discuss the effect they may ultimately have, primarily upon the development of the ever-broadening industry to which they apply, and, by reflex action, upon individual enterprise generally in this country. Tendencies may be noted, however, and especially we may record already ascertained results. In London, provisional orders for the full statutory period have been granted to various companies in respect of by far the greater number of important parishes—important, that is, from an electric lighting point of view. Capital, more or less (in some cases, the majority, in fact, very much less) adequate to the requirements of the districts, has been subscribed, and electric conductors have been and are being laid and houses lighted in every direction. Here there are no gas-owning local authorities. In the provinces, speaking by comparison, scarcely a start has been made. Yet during the last Session more than one hundred provisional orders were applied for. A large number of those applications were no doubt of a sufficiently dubious character to court and to deserve refusal; a great many more, however, were honestly made by companies prepared to properly discharge the duties and responsibilities they sought. In by far the greater number of instances, doubtful and good were alike refused; the local body rarely taking the trouble to inquire into the status of the applicant. The local authority ‘objected to any interference with their streets’;—and this in face of the provisions in the model order enabling them to break up the streets and to lay the mains themselves, at the cost of the undertaker;—they ‘intended to apply for an order themselves’; they ‘owned the gas supply, and feared the danger to their securities involved in the introduction of a competing light.’ These are actual summaries of some of the reasons urged against the grant of provisional orders. In one case well known to me, that of Barrow-in-Furness, the Corporation opposed the grant of an order, solely on the ground that there was not a demand in Barrow for electric light. They are of course a gas-owning Corporation. The applying company satisfied themselves by a canvass of the town, that a demand did exist sufficiently to justify them in investing their money in a supply station; but the Corporation’s objection was held by the Board of Trade to be a valid one, and the order was refused. There is no need to multiply examples; it is sufficient to say that in no single instance during last Session was an order granted, without the production of the written consent of the local governing body. The conditional veto granted to Corporations by the Act of 1888 has in practice become absolute. It would thus seem that the whole future of electrical distribution outside London rests entirely with local authorities, a large proportion of whom, from their position as owners of gas undertakings (upon the security of which vast sums of money have been borrowed), have the strongest possible motives for delaying, and, if it may be, for preventing altogether the development of the industry.

This aspect of the affair has been emphasised by a fresh concession to local authorities made by the Board of Trade at the beginning of last Session. Reference was made in a previous page to one of a few new clauses added by the House of Commons’ Select Committee to the Bill which afterwards became the Act of 1882. That clause (Section 11 in the Act), after giving power to local authorities holding provisional orders to contract for the construction of works or for the supply of electricity, concluded in these words: ‘but no local authority, company, or person shall by any contract or assignment transfer to any other company or person, or divest themselves of any legal powers given to them, or any legal liabilities imposed upon them by this Act, or by any license, order, or special Act (without the consent of the Board of Trade).’ The part within parentheses was added by the Lords’ Committee; as the Bill left the House of Commons, the prohibition was absolute and unqualified.

In deference to representations made by the Association of Municipal Corporations, the Board of Trade decided a few months ago to remove that prohibition altogether, so far, that is, and only so far, as it affected the interests of Corporations. A new clause was thereupon agreed to between the Association and the Board of Trade, and was subsequently inserted in all orders granted to local authorities, providing that the local authority might at any time by deed, to be approved by the Board of Trade, transfer to any company or person, for such consideration as might be agreed upon, the whole or any part of the area included in their order, with all the duties and responsibilities incident thereto.

The importance of such a concession may not be immediately evident to the lay reader. It means this. A Corporation—a gas-supplying body, let us say, or one whose interests are largely controlled by directors and shareholders in a local gas company—may obtain a provisional order, without having the slightest intention to supply electric energy. They will thus shut out effectually any inconveniently enterprising individual or company. This order they have the power to transfer for a consideration, to farm out on such terms as they may think fit to dictate. They would stand in fact in the position of middlemen. Would they be likely to offer such terms as would facilitate the supply of electricity? Why, as with exquisite
naiveté they have asked, should they cut their own throats? Without for one moment imputing deliberate
mala fides, it is fairly open to a Philistine to doubt whether human nature becomes so impeccable in a councilman that he may not by accident mistake self-interests for public interests. The sound has indeed a familiar ring, as if such a thing had already happened. Of course there is another side to the question. There are honest and well-intentioned Corporations desirous of a supply of electric light, who, while fearful to trade with the ratepayers’ money in a comparatively untried business, are yet unwilling to assent to the grant to a company of powers in their towns underived from themselves. In this case the new clause
may work well. Its general tendency, however, seems to be in a retrograde direction, as giving to interested bodies wide powers to impose terms which under the Act of 1882 had proved prohibitory of electrical development.

The situation, then, created by the Electric Lighting Acts, and emphasised in their administration by the Board of Trade, may be thus summarised. Local authorities have a preferential right to undertake the supply of electricity themselves; they may obtain statutory powers, with the right to farm them out for their own profit; they may assent to the grant of such powers directly to private capitalists taking all the risks incident to the business of electric supply, while they reserve to themselves, at the expiration of forty-two years, or of such shorter time as they may succeed in bargaining for as the price of their consent, the comfortable option of purchasing the undertaking, if it should be a successful one, at something like an ‘old metal’ valuation, or of declining to purchase an unsuccessful one at any price. And this comfortable option they may exercise every ten years thereafter.

It will be obvious from the foregoing analysis that the tendency, if not the intention, of such legislation is to discourage the supply of electricity by private enterprise, and thus either to arrest the development of the industry altogether, or to throw it into the hands of the local authorities. But are trading municipalities such unmixed blessings that we can afford to bind down the agent that has made us the foremost industrial nation of the world? Or, to narrow the issue to the special subject of this paper, is electrical distribution one of those industries that ought to be in such hands?

The present writer holds anything but pessimistic views as to the future of electricity; still it must not be forgotten that the business of electric supply is as yet a speculative one. There is no accumulated experience to guide us. Continental and American companies do not count. Gas is generally much cheaper there, and in a large number of cases their electric conductors have been run on poles overhead and cheaply. Nobody working under the statutory provisions and restrictions which now obtain in this country has done so at a profit. Dividend-paying data can of course be furnished, and are furnished, in every case; their verification has yet to be accomplished. Ought rates to be raised for speculative purposes? Again, three or four different systems are employed in London by different companies to distribute electric current. We have high tension and low tension, alternating currents and continuous currents, supply with the agency of accumulators, and supply without them. The fittest of these will survive, if either survives—for already Mr. Edison is said to have announced his confident hope ‘to obtain electricity direct, without the aid of steam-engines, or of any other motor power.’ Which is the fittest? And are municipal bodies the proper people to determine such a question? Resolve them into their constituent elements, and Mr. Smith the bootmaker shall confidentially ask you whether ‘volt’ or ‘ohm’ is really the scientific name for a dynamo machine, and Mr. Jones the wine merchant shall make a virtue of the confession that he can’t for the life of him make out how electricity can be got out of coals. Every electrical engineer who has been brought into contact with such bodies has met with many Smiths and Joneses. And these are the men, such are the electrical qualifications of the men (aggregated to the dignity of a local authority, of course), who are to determine upon the adoption of a system of distribution, ‘to levy rates’ (upon the rich and the poor alike, upon those that will and those that will not use the light for many years to come), ‘and to construct works,’ &c. for the supply of electricity.

Not only so. They are to be the managing directors of the undertaking. It may fairly enough be objected that they both can and naturally will engage the services of the most competent engineers available. No doubt. And a cockney with confused ideas as to the distinction between a harrow and a threshing-machine, may take a farm and engage a head man to manage it. But, although he will have the all-powerful gain-motive which the councilman has not, will his farming operations be likely to be as well or as economically conducted as they would be if he had been born a farmer? It is possible, certainly, to lay too much stress upon this point. Public spirit is also a powerful factor; but a controlling uninformed public spirit, whose servant the engineer will be, may make a pretty mess, with the very best intentions, of an undertaking so complex as the one we are discussing. Jobbery, or anything of the nature of jobbery, could not, of course, be respectfully predicted of an English municipality, the ‘scandals’ of Salford, and the Metropolitan Board of Works, and the jerry-built schoolhouses of the London School Board,
et hoc genus omne, notwithstanding. But the Acts apply equally to Ireland, and Englishmen have a prescriptive right to say many things of the Irish. Who does not see what nice little ‘jobs,’ under the Electric Lighting Acts, will infallibly be perpetrated, in favour of certain well-known ‘friends of the ratepayers,’ at Curraghmacree?

Another consideration is the unlikelihood of the employment by local authorities of the necessary ‘commercial traveller’ element in the business. Our young giant requires to be dressed out to the best advantage, to be introduced and praised, to be
pushed into public favour. In other words, electric energy, in the form of light or of power, is at present expensive. It has advantages that some people think more than compensate for its costliness, but they have to be made known and repeated. Why should the officials or the members of a municipality do this? It would be no advantage to anybody in particular. An example will be eloquent. At the beginning of last year the Corporation of Bolton, in Lancashire, were asked for their consent to any application by a Company for a provisional order. They refused to give it, intimating that they intended, if there were a sufficient demand for the light, to undertake the supply themselves. And they issued a circular to ascertain whether such a demand did in fact exist. The following is a fair summary of this precious circular: ‘We proposed to charge 10
d. per Board of Trade unit for the current we supply. This will be at least double the price of gas; would you like to have it at the price, and for how many years will you undertake to continue the use of the light?’ With such advocacy as this, an invention had need be born into the world with an aureola. With such sponsors, what would have been the fate, not merely of electric light, but of nine-tenths of the inventions which, in private hands, have transformed society?

It is one of the boasted advantages of the conduct of electrical undertakings by local authorities, that, while a joint-stock company must pay a dividend of 7 or 8 or even 10 per cent. upon its capital, they can borrow money at 3½ per cent.; the difference representing so much profit to the ratepayer. But, apart from the preceding considerations, tending to disbelief in their capacity to work the undertaking as successfully or as economically as the profit-coveting capitalist would do, the extensive exercise of such cheap borrowing power, this competition of the public purse with the private purse, what effect will it have? Will it not drive the investor, who is not content with 3½ per cent., to seek more remunerative channels for his money elsewhere? Capital will go out of the country, to promote the success of industries which compete with our industries at home.

But another principle underlies this question, larger and more vital still. It may be expressed and illustrated in this way. The greatest obstructionists to the advance of electric lighting have been and are the gas-owning Corporations. Not because they are Corporations, but because they have committed themselves, to the extent of very many millions of money, to the supply of one particular form of light, which might be superseded by the introduction of a competing illuminant. In the nature of things it must be so. Municipalities after all are but an aggregation of mortal men and ratepayers. Now, the creation of electric supply stations will involve the borrowing of one is afraid to say how many more millions of money. Well, the world will not stand still to guard those millions, anymore than it has done in the case of gas. Imagine—and for the purposes of the argument it is perfectly immaterial whether the supply be undertaken and the millions borrowed to-morrow or in forty years’ time—imagine the discovery of a new form of artificial light, as superior to electric light as that is to gas, will not the same battle have to be fought over again? We are creating a standing obstruction to progress, so many lions in the path.

These, shortly stated, are some of the reasons that seem to tell forcibly
against the policy of placing the supply of electric energy in the hands of local authorities, and in
favour of leaving it, with proper safeguards of the public interests, to the care of private enterprise.

The Electric Lighting Acts exist, however, and a precedent threatening to the old form of enterprise generally has been established. It is conceded, of course, that by Parliament this business of supplying light was looked upon as a special one, calling for exceptional treatment. But such special precedents are apt to develop into general ones; and having seen how far the legislature has already gone in fettering individual effort to encourage the supply ‘by the people for the people’ of one particular article (which after all is not so great a necessity as bread, and no greater a necessity, at any rate, than boots), we may pretty confidently hope, or dread, according to our views upon such matters, for an almost indefinite extension in the same direction. Municipal bakehouses, municipal boot factories, every form of industrial operation developed into everybody’s business in general and nobody’s in particular—to what Utopian prosperity and happiness may we not yet attain!