In a recent address at the quarterly meeting of the South Canterbury Chamber of Commerce, Mr. H. H. Sterling, General Manager of Railways, comprehensively reviewed the position of the Railways, particularly from the aspects of developmental and community services. After discussing certain features of motor competition Mr. Sterling indicated a basis of action to check the diversion of comparatively high-rate goods from the Railways to the roads.

The railways are the biggest industry in the country,” Mr. Sterling said. “Transport has been called the vital industry of commerce—the basic industry of commerce—and I believe that very aptly describes it, because I cannot conceive that anything could tie up the commercial life of the community more definitely than any tie-up in the transport industry.”

Therefore he felt that the Chamber could not bend its energies or the capacity of its members as business men to any more important subject than that affecting the railways of this Dominion.

Commercial and Developmental Factors.

Railways stood in the commercial life of the Dominion as a two-fold organisation—firstly as a commercial institution, and secondly as a developmental institution. It had been a curious psychology that had been developed within the last decade that very often the standards of the one were applied without reference to the standards of the other. What he meant by that was that there was becoming undoubtedly a tendency in modern times to judge the railways of this country from an exclusively commercial standpoint, when it must be very well known, on the slightest reflection, that they were being run, and must indeed be run, from quite a different standpoint wherein the developmental aspect, if not uppermost, was at least a very potent factor.

It was said that the railways were not “paying,” that the railways were “losing” such and such an amount, generally the amount that represented the difference between revenue and expenditure as shown in the figures of the revenue and expenditure account that was contained in the Annual Railways Statement, but he just wondered if, on reflection, anyone would dare to say dogmatically that those amounts fairly and squarely enabled anyone to say that the railways of this country, when regarded in the two aspects he had mentioned, did not pay. He thought that was a very difficult matter, as he would endeavour to elucidate.

Revenue Account Does Not Show All Benefits.

The railways gave certain services—some on the commercial basis, some more or less confessedly on another basis. The expenditure was commercial in such a sense that the whole of the cost of the railways, the whole of the cost of giving those services, whether either directly remunerative or not so as to be reflected in the revenue account, was shown in the expenditure account; but was the whole of the benefit from that expenditure shown in the revenue account? He dared to say, without the slightest fear of contradiction, that it was not. He need only remind the meeting that the railway had some services—and a good many services—which were not expected to be directly revenue-producing because it was believed that they would be in the interests of the community either as resulting in an indirect pecuniary advantage to the community, or in some other way—such as social service—they were for the welfare of the people.

Preferential Rates.

For instance, they might take such rates as the preferential rates which were given for locally manufactured commodities. The reason for such rates were generally the belief that the railways were helping to establish local industry and giving employment to people, and consequently it was worth while to give those rates. From that viewpoint, those rates “paid” or presumably they would not be there. There was a direct pecuniary advantage from the sum received which was reflected in the railway revenue account, and there was that indirect advantage not capable of mathematical statement, but which was the basis of the justification of the preferential rate, and was, by the making and continuance of the rate, postulated to exist. That was a rate he placed in the category of those where there was a direct financial return reflected in the railway accounts, and an indirect return not in the railway accounts.

There were some rates which were not intended to give even the community a financial return, but were held to be justified on other grounds. For instance, there were the workers' weekly tickets under which the Railways carried people for distances up to 10 miles for about 2 ½d. A 12-trip workers' ticket in certain areas costs only 2s. a week, which would enable a worker to make six trips in and out. If a bus owner were asked if he could produce transport at that rate he would not be long in giving an answer. The return to the railways was not remunerative, but would anyone dare to say that these tickets should be abolished? He did not think anyone would have the temerity. What was the justification for those fares? It could not be stated in terms of money figures, but everybody knew that the social service rendered by those tickets made it worth while for the community to pay something to secure the social benefit resulting from the prevention of slums and slum conditions.—Mr. H. H. Sterling.

“Loss”—A Misleading Word.

This was an illustration of his statement that while the expenditure was wholly shown in the railway expenditure account the benefits of the expenditure and efforts of the railway men, from the General Manager downwards, were not reflected in the revenue account. He believed that he had probably said enough to bring home to his hearers, as business men, his point and to illustrate the fallacy of saying that the difference between revenue and expenditure in the railway account was the measure of what was (quite erroneously) termed the “loss” on the railways.

Nevertheless, he was not going to say that the difference was a figure that should not improve, or that they should salve their consciences by saying “Sterling says it is for social service or some other thing.” He recognised that that figure had to be kept within the bounds of what the community could reasonably afford; and how was that to be done?

The New Transport Problem.

In order to get the answer to the question in its proper setting it was necessary to look into the transport problem, and the conditions in the transport industry, many of which were not peculiar to New Zealand, but were universal, because there was not a railway concern in the world to-day that had not felt the pressure of the new conditions in exactly the same way as the New Zealand Railways had. In the old days, before the advent of the road motor vehicle, the railways had what might be termed a quasi - monopoly. They could in those days give unpayable services and readily recoup themselves. Sometimes there would be objections from the people who were going to be asked to pay a little extra in order to make the accounts balance, but in the final analysis they had to pay.

In time a new element was introduced, an element which enabled the people to say: “We are not going to pay this; and if you do not remove it we are going somewhere else,” and in these and other ways arose disturbances of the public mind which have led to an inadequate analysis of the position.

Low and High Rate Goods.

Especially in New Zealand, a careful analysis of the position was necessary in order to determine the soundness or otherwise of the railways. “As our railways are a developmental as well as a revenue earning institution we have page break

Prize-Winner Among New Zealand Station Gardens.
(Rly. Publicity photo.)
(1) The Rakaia station garden, South Canterbury, which was awarded the Challenge Cup trophy in the recent station garden competition. This garden is noted for its wealth of roses, about 150 assorted varieties of which were planted by Mr. H. MacDougall, for some years stationmaster at Rakaia—now retired on superannuation. No less enthusiastic in devotion to the garden is the present stationmaster (Mr. D. Finlay, inset 2) and his staff, who have worked successfully in furthering Mr. MacDougall's pioneer work. (3) The invercargill-Christchurch Express passing over the Rakaia Bridge (1 ½miles), New Zealand's longest railway bridge.

page 17 had to face more concessions from that point of view than other railways not situated as ours,” Mr. Sterling continued. “We had, however, up to the time when the competition entered, been able to keep the position fairly well in hand by reason of the incidents I have mentioned, that on the goods that were able to carry the higher rates we were able to recoup ourselves so as to come reasonably near squaring the ledger. However, with the advent of competition and that feelingof dissatisfaction regarding the distribution of the burden of the developmental or non-commercial rates, a tendency has grown up, and is becoming most marked, for the person requiring transport to transfer his higher rate goods to the competitive form of transport while leaving his lower rate goods with the railways.”

What To Do?

The inevitable result had been that the railways, through no fault in the management whatever, but solely due to the altered conditions, could not square the ledger by the means that were previously adopted. What then was the position that had to be faced? The people had either to face that difference between the revenue and expenditure account and say they could afford to pay that as a community for the benefits the country was receiving from the railways, and pay it, or else they could not afford to pay it or they were not going to pay it. Very frequently the latter course had been adopted inferentially by the people concerned complaining about the financial position of the railways, saying that they were not going to pay and something had to be done.

Not in Favour of Status Quo.

Well then, what was going to be done? One course at once suggested itself, and that was to restore the status quo. Well, that appealed to him as not being quite possible. He was not, as a Railway Manager, so blind to the changes that had taken place within the transport industry as not to recognise at once that the road vehicle had come into the industry and was capable of serving a useful purpose, and that it was here to stay. He believed, however, that much might be done by the community to bring the motor transport section of the industry to a position of greater economic usefulness to the community. He did not propose to pursue that further at the moment because he had dealt with it in his last Annual Report.

The transport costs to the community were not necessarily what any individual might pay, but what it cost to produce the transport, because that sum total of costs had to be paid in some way. It was only a matter of distribution. It might be paid by the users or the taxpayer. The cost in respect to one commodity might be apparently paid for by the charge on another commodity, but the point he was making was this: that the sum total that had to be paid, whether by way of railway charges or otherwise, was measured by the cost of producing the transport.

“Last year the railway management would have squared the railway accounts, including developmental costs, at 2.86d. per ton mile average. Could any motor carrier produce transport by motor of the commodities of this country at that figure? The actual revenue came to 2.41d. per ton mile; the balance required was .45d.—less than ½d. per ton mile—to square the ledger.”—Mr. H. H. Sterling.

The Alternative.

He wished to deal with the alternative. It appealed to him, as he hoped it would appeal to his audience, that, if the railways were to be judged more and more from a commercial standpoint, if the people were to say they were not prepared to make up that deficit as taxpayers and the users of the railways should make it up, then obviously to the extent that the capacity of the Railways Department to give the low-rate goods the low rates was reduced by the higher-rate goods being taken away, inevitably the result must be that the lower-rated goods could not have the advantages they had hitherto enjoyed. That raised the important question as to whether a general increase of these rates was a desirable thing. He personally felt that, if it could be avoided, it ought to be avoided, and he himself had endeavoured to avoid it, more particularly when he observed that there were many people in the community requiring transport who, recognising the position, remained loyal to the railways and gave their business to the railways, the whole of it their high-rate as well as their low-rate goods.

Consideration of Loyal Users.

Obviously in any action that might be taken in the direction of a general increase in the low-rate of goods they were going to put an impost on that man who had been loyal to the institution because of the fact that his neighbour had not been able to make such a detailed analysis of the position and had deserted the institution with his better - rate goods, while leaving the lower-rate goods to the Railways Department.

How could that inequity be fought? There seemed to be only one way in which to do it, and that was to say to the man who could not recognise the advantages that he or the community received in respect of the low rates: “If you are going to adopt some other form of transport, let that be your standard, but let us be consistent and make it the standard of transport throughout. You cannot have the benefit of the low rate on the low-rate commodities if you are prepared to go to some other form of transport with your high-rate commodities.” That seemed to be a perfectly fair and equitable position to take up, not only from the point of view of the railways, but from the point of view of the users of the railways.

That was the position the railways had reached. The capacity of the country to carry a deficiency on account of the railways was, as in other countries, limited. With a deficiency approaching £1,000,000 for a country with a population of 1 ½ million it was apparent that New Zealand was reaching the limit of its resources in that regard. It had to be recognised that there was a limit to the ability of the country to pay for those low rates through taxation. When all was said and done, it reduced itself to a question of the distribution of the transport costs.

From time to time references were made to the great desirability of having rates cut for such things as fertiliser, and particularly commodities that went to make up the costs of the man on the land. The basis of that was generally the statement that as New Zealand was a primary producing country the more prosperous the primary producers could be made, the better it was going to be. Admitting the fact that New Zealand depended for its prosperity on the primary producers, it was difficult to quarrel with that statement. The railway administration as such had been impressed with the great desirability of continuing that line of action if it was at all possible, and that had created some hesitancy in the minds of the administration in the matter of making any general increase on those low-rate commodities; but then occurred again the question of doing something to prevent an increase in the deficit. He believed that inasmuch as any particular man or concern set up the charges of some other form of transport as his or its standard as against the Railways, then that man or concern could not complain if the Railways in their turn insisted that that standard should operate uniformly in respect of the whole of the transport business of that man or concern.—Mr. H. H. Sterling.

A Mischievous Fallacy.

This prompted him to mention a belief or suggestion that had struck him as being very fallacious and mischievous, but was fundamental and led people to wrong conclusions. It was that the motor had reduced transport costs. That was based on the fact that in some cases the motor carriers charged less for certain goods than the railway charged between the same points, but it did not follow by any means that the sum total of the transport costs to the community was being reduced by that procedure.

Problem of Distribution of Costs.

The point that had to be kept clear in mind was that there were two questions involved that must be kept distinct — first, the total transport costs to the community, and second, their distribution.

If a man adopted a line of action that increased the total transport costs to the community and, provided the distribution of those costs was not altered, so that the increased burden was borne by the party responsible for it, then probably no great harm was done, or at least no great discontent would arise; but when action of that kind was followed by an alteration in the distribution of the costs so that the proportion to be borne by the party concerned was reduced and the burden shifted to other members of the community, or to the community as a whole, then of course cause for dissatisfaction arose immediately. The trouble was that, when a man secured a reduction page 19 in his high-rate goods by sending them by motor, the advantage was individual, while the burden was borne by the community, unless the community chose, by some such method as that outlined, to recoup itself and to that extent restore the status quo.

Some Arresting Figures.

Just to show exactly what it meant to the railways if the Department recouped itself for the loss on account of the higher rate of goods, he had had a few figures prepared which he thought would bring the railway position in this country into vivid relief. These figures showed that if they were considering the railway position of the country on the basis of the service given to the people, instead of the balance of revenue and expenditure, the difficulties, so far as they depended on service, disappeared. He was not going to say that the financial difficulty would disappear, because there was a limit to the capacity of the country to carry social, developmental and other such rates. The railways carried 360,000 tons of grain; meals, 120,000 tons; root crops, 100,000 tons; hard coal, 1,110,000 tons; soft coal, 1,000,000 tons; agricultural lime, 140,000 tons; New Zealand timber, 540,000 tons; chaff, hay, and other low-rate goods, 320,000 tons; and manures, in six-ton lots and over, 630,000 tons. These were just a few figures that he had got out, but probably the more interesting would be the totals. The total quantity of goods accounted for by these low-rate classifications was 6,530,000 tons out of a total of goods carried of 7,613,000 tons.

But the point of view he wished to bring out so far as the passenger business went was its commercial aspect. The position was well in hand, and the commercial competition with the railways in New Zealand was not growing to any material extent. The Department had instituted cheap excursions, which had saved the situation from the point of view of the railway passenger returns. It was almost a wholly new traffic, and the result had been that the passenger traffic had now assumed more substantial dimensions. It was certainly a “bread and butter” line, but from the point of view of service to the community it stood very high indeed. It was found to-day that the people whose pecuniary position was not strong and who were to a large extent crowded together in cities were now able, through the railways, to get out and have a breath of fresh air at a rate that was within their means and could not be given by any competitive form of transport. This was something for which the Department was entitled to credit, a credit that was by no means directly represented by the figures in the revenue account.—Mr. H. H. Sterling.

How Ledger Could Be Balanced.

It would be seen that those goods represented, approximately, 86 per cent. of the total that the railways carried. The revenue from these goods was £3,798,953, out of a total goods revenue of £4,898,391, or less than 78 per cent, of the total, so that while those low-rated goods represented 86 per cent, of the tonnage the revenue got from them represented 78 per cent, of the revenue. It would be clear to the members, therefore, that the other 14 per cent, should carry a margin on the rates which would enable the railways to catch up on the low-rate goods. The main point was this: that inasmuch as the low-rate goods represented such a large proportion of the total tonnage it would not be an impossible matter for the Railway Department to square its ledger by increasing the rate on those low - rate goods.

Reasons for Hesitation.

Why, then, did the Department hesitate? It hesitated for two reasons. The first was that, if it increased those rates to an extent that would balance the ledger, it would be collecting from the users of the railways more than a private company would collect—from this point of view: that inasmuch as the community was receiving a benefit through the developmental rates from the railway expenditure, the community as a whole and not the users of the railways, should pay for that. The community enjoyed the benefit and should pay something for that benefit, and the Department should not require to obtain more in the way of revenue from the customers than a private railway would do.

The second point was that the Department might find that an increase on those low-rate goods would not be in the best interests of the community.

The Equitable Course.

If a man was not willing to give the page 20 railways the capacity, by conveying his high-rate goods as they had done in the past, to continue carrying those low-rate goods, he was not entitled to stand in with his neighbour and enjoy the same rates on his low-rate goods as his neighbour. A great deal of reflection had led him to the conclusion that that was not only equitable as between individuals, but the best way in which the railway position could, apart from legislative action, be guided in this country along the lines of stopping the increase in the difference on account of revenue and expenditure.

The Matter of Expenditure.

When members of a Chamber of Commerce were considering, as taxpayers, or as shareholders of the railway concern, the question as to whether that deficit should be there or not, they, as business men, said: “Well, if the expenditure were less or the revenue more, that would mean at least that the deficit, to the extent that it is affected by either of these factors, would be lessened.”

They wished to know was the expenditure down where it ought to be and were the railways getting as much business as they ought to get by such methods as it was within the scope of the Department's authority to adopt. He could assure his hearers that the railways were being run as economically as the circumstances permitted. He had gone into this matter at considerable length in his last Annual Statement and he had placed definite costing figures before the public. He gave the statistics of railway operation which were there on record for perusal by anyone who might care to analyse them, and he had made an honest endeavour to give such explanations as would make the significance of the statistics manifest and enable anyone interested to get an intelligent grasp of them. endeavour to give such explanations as would make the significance of the statistics manifest and enable anyone interested to get an intelligent grasp of them.

In New Zealand there was another fact that they had to keep in mind when they were making use of the words “Making the Railways Pay.” The whole difficulty in viewing the railway situation was the interpretation of that term. It might mean making them pay as an abstract commercial proposition or it might mean as a community investment. The difference was vital to a clear conception of the railway position. If the railways were to be made an abstract proposition all consideration of social and developmental benefits from the scheme of railway rates had to be taken away.

If the railways were viewed as a community investment, giving returns to the community of various kinds, some financial and some in the direction of development, or sound service in some other direction, it had to be admitted that the railways did very adequately pay. He mentioned that both on the passenger and goods side the management was guided by a desire to give adequate service to make it worth people's while to use their own railways, but he felt that while there was a responsibility on them as workers of the railways there was a reciprocal responsibility on the part of the people as shareholders and potential users of the railways.—Mr. H. H. Sterling.

No one could stand up at any particular moment and say there was nothing further to be done on the expenditure side. The efforts to secure reduction of expenditure and greater measure of economy were not static in their nature but dynamic.

Economical Working.

As the railways stood to-day there was no opportunity being missed for their economical working so far as the matter might come within the control of the management, and economies were constantly being effected. He made that last qualification advisedly because there were some matters outside the control of the management, some of them inherent in a State institution, others arising from other sources. He did not hesitate to say, as General Manager, that on the expenditure side no opportunity was being omitted to keep the expenditure down as far as they were able to do, and he did so with a full sense of his responsibility.

Increasing the Revenue.

The management also seized every opportunity for increasing the revenue not so much by increasing the rates as by going out and getting traffic. On the passenger side there were very great difficulties which were outside the control of the management of the railways and which were world-wide in their operation. In commercial competition the railways were holding their own. The returns showed more passenger journeys than ever before in the history of the railways, but unfortunately the page break

Scenic Pictures On The New Zealand Railways.
(Rly. Publicity photo.)
The Manganui-o-te-ao Viaduct (height 112ft.) on the beautiful central section of the North Island Main Trunk Line, shewing Mt. Ruapehu (9,175ft.) in the background.

page 22 character of their traffic had radically changed.

The Private Motor Car.

The trouble on the passenger side was not so much commercial competition as the competiton of the private motor car, which was in a sense non-commercial. It probably was very rarely indeed that the question as to whether a person was going to travel by private motor car or railway was determined by the financial considerations involved. Day by day people were travelling by their motor cars and they did not give one single thought to the question as to whether they could not do it more cheaply by rail. Circumstances of convenience entered into it, of course, and all too often—he was afraid — circumstances of vanity.

Out for the Goods.

On the goods side, the Department was adopting business methods. It was going out with a message to the public, a message of service, a message that was backed by truth and sincerity, and a message that had, he believed, the honest will-to-do of the 19,000 employees of the Department. The result was that he felt himself on sound ground in saying that on the goods side also the Department had gone out to get the business with a very large amount of success.

It was not those who worked in the railways that put the railways there to be used. It was the people through their representatives deciding in accordance with the constitutional methods existing in this country. The railways were put there without reference to those who had to work them. He was not criticising in any shape or form whether that was desirable or otherwise, but the point he wished to bring out was this: that inasmuch as those railways were put there by the people it was the duty of the people to use them or abide by the consequences. The utmost responsibility that could be fastened on those who had to run the railways was to make the use of them as cheap and attractive as possible. Those responsible were endeavouring, and as he hoped and believed with success, to do that. Whether the people discharged their responsibility, if he might put it in that light, was a matter, of course, entirely for themselves. The job of the railwaymen was to make the service worth while for the people not only in their capacity as members of a community supporting their own investment, but as users of the railway finding it profitable and pleasant to do so.—Mr. H. H. Sterling.

Zealous Conscientious Staff.

He did now and again come across some people who railed against the railways because they had probably bumped up against some member of the staff with whom they had got at cross purposes. It would be queer, indeed, if in a fold of that size there was not an occasional black sheep. He said that, not by any means by way of apology, but simply in recognition of the known frailties of human nature. But surely the whole outfit was not to be judged by such exceptional cases as those mentioned. The great body of the men of the railway service were guided by a sincere desire to do their best for those who were employing them. It had been his happy experience in recent times to hear many testimonies supporting that view.

Certain Handicaps.

In the application of business methods to the affairs of the Department, he said, the management was, however, under some disadvantages, many of which were inherent in State ownership. It could not have the flexibility of a private concern in either its external or internal relationships. It could not have that freedom of action which the owner-driver of a motor vehicle could have in quoting rates. The people of the country, impelled by their democratic instincts, insisted on uniformity of treatment and the slightest deviation was enough to bring down upon the railways a very emphatic protest. The efforts of our competitors were not in that way circumscribed. There were other points in connection with State ownership that had similar effects. He did not mention them by way of excuse, because he did not think that any excuse was necessary.

Faith in the Service.

He pinned his faith to the service they were able to give, service that was demonstrated in the figures he had given—the fact that the railways were able to carry 86 per cent, of their tonnage at a rate that no competitive form of transport could possibly look at. If to-morrow they were told that the railways were formed into a commercial institution and told: “Now, go to it on that basis,” he would not hesitate to say, without the slightest possible doubt, that page 23 the railways could be made to square the ledger. Whether it would be good was the question. He personally believed that it would not.

Internal Co-ordination.

Within the Department the managerial policy had been one of co-ordination of effort. In the external relationships it had been along similar lines. Within the Department, by frequent conferences of executive staffs and by receiving sympathetically and suitably rewarding suggestions and inventions, they were making an immense collective effort.

External Co-operation.

In their relationship with the outside public they had endeavoured to merit their co-operation. His presence at the meeting was an illustration, if he might put it, of the policy in endeavouring to make the utmost possible contact with those who were sufficiently interested in the railway problem of the country to want to make contact with them. In order to carry out that policy it was necessary that he, as the executive head, should move freely about the country. He had endeavoured to do so, and believed that the fact that he had done so had been helpful to a great many earnest thinkers on the railway problem. It had certainly been helpful to him, because even criticism represented a point of view, and inasmuch as the capacity of all to know the facts at first hand had a definite limitation, it was only by a constant contact with people and exchange of ideas that satisfactory progress could be achieved.

The Department's Lake Steamer Service
The dining saloon of the P.S. “Mountaineer,” one of the Railway Department's fleet of steamers on Lake Wakatipu, South Island, New Zealand.