THE STORY OF THE TELEGRAPHS AND TELEPHONES.*
MR. HUGO MEYER, who was for some time Assistant-Pro- fessor of Political Economy in the University of Chicago, has for several years past been engaged in a careful study of municipal and Governmental ownership in Great Britain. He has already published a volume on municipal ownership, and now turns to Governmental ownership as illustrated by the Post Office management of telegraphs and telephones. His original idea was to treat these two examples of State owner- ship in one volume, but the amount of interesting material was so great as to render that course inconvenient. He has therefore produced two separate hooka. The story of the telegraphs comes first, and very well has Mr. Meyer told it.
The agitation for the purchase of the property of the telegraph companies by the Government began as early as the year 1856, and simmered on without much definite result till 1865, when Mr. Scudamore, second secretary of the Post Office, was appointed to inquire whether the electric telegraph service might be advantageously worked by the Post Office. Mr. Scudamore reported in due course in favour of State purchase. The grounds of this Report, and of subsequent Reports by Mr. Scudamore, are carefully analysed by Mr. Meyer, who shows in detail that many of the reasons put forward for purchase could easily have been rebutted at the time if any one had taken the trouble to go behind Mr. Scudamore's statements. But the politicians were anxious to hurry the transaction through, and the opposition of the corn- panies was bought off by giving them good terms of purchase. After these terms had been settled the Chancellor of the Exchequer estimated that an immediate net profit of £210,000 a year could be counted upon, and that this would suffice to pay off the whole telegraph debt in twenty-nine years. This was in 1868. In the first year of working, 1870, there was a net profit of £47,000; in the second year there was a net profit of 25,600. From that date onwards the Post Office telegraphs have been a complete commercial failure. Year by year the taxpayer has bad to meet an ever-growing charge for the telegraph deficit. The actual amount of that charge cannot be precisely stated, for the telegraph accounts are presented in such a slipshod fashion that it is impossible to obtain the full facts ; but if allowance be made for interest upon the Exchequer payments issued to provide for extensions and for past deficits, the present deficit certainly exceeds a million pounds a year.
The causes of this colossal failure are fully explained in Mr. Meyer's admirable little book. He shows conclusively that the popular view that the present failure is due to the high price paid to the companies is entirely unsupported by facts. The Ministers who agreed to give that price did so in the full expectation that the country would make a profit upon the transaction, and the property which they purchased for the nation was afterwards almost doubled in value by discoveries which were not foreseen at the time of the purchase. The invention of duplex and quadruplex telegraphy, and the im- provement in operating instruments, added enormously to the carrying capacity of every one of the many thousand miles of wire which the Government purchased. To quote Mr. Meyer "In 1870 the maximum speed per minute was 60 to 80 words. In 1895 the fixed standard of speed for certain circuits was 400 words, while a speed of 600 words was possible of attain- ment." Yet in spite of this unexpected free gift, the Govern- ment continued to lose money.
The root of this failure lies in the fact that a Government Department subject to political influences cannot possibly work on commercial principles. Mr. Meyer shows how the Post Office employes have banded themselves together to put pressure upon Members of Parliament, and how the House of Commons and the Government have again and again succumbed to the pressure. At the same time, the standard of work expected of the employes of the State has admittedly been allowed to fall below the level of that required from the employes of commercial firms. In the words of Mr. Lewin Hill, one of the witnesses before the Tweedmonth Commission, "railway servants have continuous employment as long as they are efficient, but our people have continuous employment
* The British State Telegraphs; and Public Ownership and the Telephone in Great Britain. By Hugo Richard Meyer. London Macmillan and Co. [6s. 6d, net each.]
whether they are efficient or not." It is not even possible for the Postmaster-General to promote an exceptionally capable employe over the heads of incompetent men without risking a question in the House of Commons which may involve elaborate explanations in reply. In passing, it may be ripnarked that the preparing of answers to House of Commons gnestions absorbs, at a low estimate, not less than a third of the time of the highest officials in the Post Office, and that many cif these questions relate to minute matters of detail which in a business firm would properly be left to subordinates.
The story of the telephones—or, we might almost say, the tragedy of the telephones—starts with the acquisition of the telegraphs by the State. As long as the telegraph business of the country was in the hands of private companies there was no monopoly, and if private ownership had been permitted to continue, the appearance of the telephone would have been hailed with delight by every one except the shareholders in the telegraph companies. There would have been a keen struggle between the two forms of electrical communication, and the public would have pro- fited by the rivalry. In the end much of the capital invested in telegraphs would doubtless have been rendered valueless. But the loss would have fallen entirely on private owners. This is one of the happy results, ignored by Socialists, of the private ownership of the means of produc- tion. The spirit of enterprise and the desire of gain prompt the owners of wealth to invest their money in new industrial developments instead of spending it all upon personal and fleeting gratifications. The nation obtains the benefit of the public utilities which are thus created, and the nation loses nothing when these utilities are superseded by some new invention. The capital which is incidentally destroyed is not national capital. It would never have existed at all if private individuals had not been free to spend their money upon public enterprise. It would all have been consumed years ago upon private enjoyment. On the other hand, when the State takes over an industry national capital is invested, and the Government, as representing the nation, struggles to crush every new invention which would destroy that national capital.
The incidents of the struggle which took place in the case of the telephones are lucidly set forth by Mr. Meyer. In the first place, the Post Office began by insisting that every tele- phone company should pay, as the price of a license, 10 per cent. on its gross receipts,—an enormous burden to place upon a new industry. This 10 per cent. tax still continues, and is humorously reckoned in the Post Office accounts as part of the earnings of the State telegraphs. At the same time, the Post Office refused to allow the telephone companies to do anything that would render the telephone popular. For example, in Manchester the local company proposed to establish public call-offices with a charge of a penny a call. The Post Office insisted that the lowest charge must be a shilling per call. Again, the Lancashire and Cheshire Com- pany offered to pay the Post Office a handsome rental for trunk lines between the towns of these crowded counties, pro- vided it might give free use of such lines to its subscribers. The Post Office refused to allow the use of trunk lines unless each subscriber was charged annually at the rate of ten shillings per mile of trunk line. At length the public began to grow angry. In 1884 the Times wrote that the action of the Post Office was "so directed as to throw every possible difficulty in the way of the development of the telephones," and that the "regulations under which licenses have been granted to the telephone companies are in many respects as completely prohibitory as an absolute refusal of them." Similar opinions were expressed in the House of Commons, and the Post Office found itself compelled to adopt a slightly less obstructive policy.
In 1889 and 1890 the various telephone companies amalga- mated into one company,—the National. This amalgamation was accompanied by a considerable watering of stock, and critics of the National Telephone Company have constantly laid hold of this fact, and used it as a stick with which to beat the company. We hold no brief for the National Tele- phone Company, but we recommend our readers to atudy the very reasonable defence which Mr. Meyer makes of this financial operation. When the original telephone companies were formed, the industry was highly speculative, and the public could only be induced to advance capital on very onerous terms. That meant that the nominal capital wail from the outset in excess of the real cash invested. The difference measures the cost of raising capital, and Mr. Meyer fairly argues that this cost was in effect as much a part of the cost of the resulting telephone system as was the cost of poles and wire and labour. When the speculation turned out well, the price of the shares rose to a premium; but the men who had risked their money on a doubtful venture were surely entitled to reap this reward of their courage. To refuse to recognise such a claim would be to strike a fatal blow at industrial enterprise.
So far we have only referred to Post Office obstruction, but the obstruction of the municipalities has been almost equally serious. As soon as it became clear, by the pro- gress of invention, that the best form of telephone con- nexion was by a double wire laid in pipes underground, the National Telephone Company applied to the municipal authorities for permission to lay wires under the public thoroughfares. By this time, however, many municipalities had been bitten with the idea of establishing a telephone system of their own ; and in order to prepare the way for executing this idea, they refused to give the telephone company the permission asked for. Thus the company was not only deprived of the opportunity of giving the public a better service, but it was compelled, in order to meet the demands of new subscribers, to continue erecting overhead wires, well knowing that nearly every penny of the capital so expended would be wasted.
The Glasgow Corporation was the worst offender in the policy of municipal obstruction, and so serious was the pnblic inconvenience which resulted that the Treasury appointed a Commission of Inquiry. The summary of the Report of this Commission which Mr. Meyer prints is well worth perusing by those who still possess a childlike faith in municipal Socialism. In spite of this Report, Glasgow and other towns were for years permitted to obstruct not only the National Telephone Company, but even the Post Office itself. The end of the struggle was the demonstration of the incapacity of municipal bodies to manage a telephone system. Of all the municipalities in the kingdom, only six actually ventured to start telephone exchanges. Of these six, Glasgow and Brighton have since sold out to the Post Office at a loss. Tunbridge Wells has sold, without serious loss, to the National Telephone Company. The other three are, or were, struggling along, the Post Office having refused to buy their plant, except at a heavy reduction upon what they paid for it.
As everybody knows, the Post Office will in 1912 take over the whole plant and business of the National Telephone Com- pany. It is impossible to read the evidence which Mr. Meyer has so carefully collected without coming to the conclusion that this transfer will be financially disastrous. Unfortu- nately, there appears to be no prominent politician with courage enough to stand up and try to prevent the disaster.
Previous page
