PUBLIC CORPORATIONS
By OSCAR R. IIOBSON
THE present " white-headed boy " of many economic reformers is the Public Corporation, which is being hailed as the ideal compromise between socialism and individualism for the running of many " difficult " industries, like coal and transport.
The public corporation is an incorporated body, like a joint-stock company, similarly organised, with similar privileges, and conducting its business on similar lines through a board of directors. It differs from a limited liability company in one essential particular—that it possesses no share capital, but only loan capital, and therefore owes no allegiance to any body of shareholders clamouring for profits and dividends. Its duty, in fact, is not to make profits, but to conduct its business as " trustee for the public interest," though it is required, of course, to earn a surplus of income over outgoings sufficient to cover the interest and sinking-funds on its capital and to establish suitable reserve funds. It is this non-profit-making characteristic which recommends it as a form of organisation suit- able for running services of the natural monopoly or public utility type. On the other hand, it has in the conduct of its business much of the freedom of the ordinary joint stock company, and is supposed in that respect to be superior to the fully nationalised undertaking like the Post Office, which is under the direct control of Parliament and functions—or is assumed to—in an atmosphere of parliamentary questions and political " pressure."
The public corporation, in a word, can claim many of the virtues of a company engaged in private enterprise without being exposed to the temptations associated with the " profit motive." There is, however, one serious snag about it, as there is with most attempts to make the best of two different worlds. The snag is that, in getting rid of the profit motive, it also gets rid of the capacity to stand losses. Shareholders may be grasping people, greedy for profits, but they don't shirk risks and can take losses where such are their portion. Stockholders in public corporations, however, have the status of creditors who have no voice in the conduct of the business, arc not compensated for taking risks and cannot there- fore be expected to shoulder losses.
For this reason the public corporation is only a suitable instru- ment for the conduct of businesses of the " natural monopoly " or quasi-monopoly type, where the consumer is almost indefinitely " squeezable " and revenue can be nicely adjusted to expenditure by appropriate " rates " or " tolls." As a matter of fact, though many people think of the public corporation as a recent discovery, there are still in existence examples of quite respectable antiquity among the Port and Conservancy Boards, like the Mersey Docks and Harbour Board and the River Wear Commissioners, both of which were incorporated in mid-nineteenth century. The classical example of the species is the Turnpike Trust of the eighteenth century. The Turnpike Trusts were established by special Acts of Parliament like the modern public corporations. Just as the two most recent of these, the Central Electricity Board and the London Passenger Transport Board, were formed to run " grids " of electric trans- mission, lines and tube railways and 'bus and tram routes respec- tively, so the job of the Turnpike Trust was to establish and main- tain a " grid " of highways. Like them, it raised its capital by exercising borrowing powers conferred by Parliament : like them it raised its revenue in the form of rates or tolls on the traffic using its " grid." In the matter of administration there has been a significant change since the Turnpike Trusts. Their trustees were nominated by the relevant Act from among the gentry of the
district, but no attempt was made to ensure that they had an qualifications for their office, and, worse still, the trustees usuall had powers of co-optation. With the modern corporations, vario methods of appointment are laid down, but there is no co-optatio and there is a growing tendency to insist upon the small executiv type of board, for which the possession of defined qualification is required, as contrasted with the " representative " type of th Turnpike Trusts and some more modern corporations like th Metropolitan Water Board.
The failure of the Turnpike Trusts was probably due largel to these constitutional defects. Nevertheless, there are. I th lessons to be drawn from their failure, which in 1835 led to the abolition and the transfer of their functions—in flat defiance of th modern doctrine—to the direct control of parish councils or oth public authorities. One important reason is that few monopol are absolute ; another that Parliament cannot be counted on ensure that the " consumer " gets fair play. from a producer monopoly of its own creation. Despite their toll-fixing powers, man of the Trusts were soon in difficulties, and they had continually appeal to Parliament to help them by extending their powe Parliament was induced to give them authority to block up by-lan and close or divert ancient highways, so compelling travellers to u the turnpike-road ; it allowed the Trusts to impose prohibitive ra for the more effectual preservation of the roads: it allowed the Trus to impose prohibitive rates on heavy traffic, to seize horses in exce of the lawful number and to charge double tolls for narrow wheel All to no purpose. The Trusts were incompetent and corrupt, an in the end they were swept away.
We need not fear a repetition by our modern public corporatio of the grosser failings of the Turnpike Trusts, but their inability conduct even a monopoly business successfully should at least sere as a caveat against accepting the more extravagant claims which a now being put forward for entrusting all kinds of non-monopolist' and even highly uncertain businesses to new-style Turnpike Trus Even in our own day, we have before us the example of the Londo Passenger Transport Board, which has signally failed to earn
standard dividend " of 5+ per cent. on the L23,000,000 of quas equity " C " stock, with which Parliament, in a sanguine momen thought fit to burden it.
I have therefore the gravest doubts as to the wisdom of curre proposals for entrusting the coal industry to the control of publ corporations, for coal-mining is not in any real sense a monopoly, even a strongly " sheltered " business. You cannot get away fro A the fact that every business incurs risks of loss, and someone mu bear those risks. A corporation armed merely with borrow powers cannot bear risks, and if the " equity " capital is ruled o on the ground that it requires to be remunerated by profits, the alternative course is that the State should bear them. That me fortifying the public corporations with a Treasury guarantee—as w Pt actually proposed in the case of the Central Electricity Board. may be the way out in certain cases, but we must remember that Treasury guarantee necessarily implies Treasury control, and t means depriving the public corporation of the independent sta on which such hopes have been pinned, and a return to the reject mode—direct departmental control.
I can see no way out of that dilemma. With services which really of a monopoly character it may be legitimate to chance That was done successfully with boards like the Metropolitan Wa Board, the Port of London Authority and the Central Electric Board, which, with the express object of escaping from the incon- venience of Treasury control, decided to dispense with the guarantee and was able in fact to raise its capital without, though on rather expensive terms. But with coal, and still more with iron and steel, it would be courting disaster to resort to " trustification " without fixing in advance precisely on whose shoulders the risk of loss is to lie. The temptation to do so will be strong, but it must be resisted.
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