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The Pamphlet Collection of Sir Robert Stout: Volume 72

The Railway Problem in New Zealand

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The Railway Problem in New Zealand.

The Railway Reform League Proposes:—

1. The Total Abolition of Differential Rating.

Differential Rating.

I am often asked, What is differential rating? Tell us exactly what it means.

To describe all that the term "differential rating" means, in a way that will be under-stood by the general public, is a somewhat difficult task.

Differential rates are known by various names, as—Discriminations, preferences, drawbacks, rebates, discounts, allowances, through rates, etc.

It will be well to go back a little, and trace how and why the practice arose.

Railways originated in England, and the Government of that country made the mistake of allowing them to be constructed by private people, and held as trade speculations.

The only object the constructors of railways had in view was to make money out of their investments, and this, indeed, is their only object now. To such an extent has this been carried on in some countries, and so much have their powers been abused, that in many parts of Germany, for instance, to call a man a railway "constructor" is more offensive than to call him a liar.

At the commencement of the railway era, fares and charges appear to have been arranged on a fair and equitable basis. On the first railway, the Stockton and Darlington, passengers? were charged one uniform fare of one shilling each for the whole, or any portion of the 12½ miles. Parcels also were charged one uniform rate. This line was not intended to carry goods.

As time passed on railway construction and working became more expensive, and as making money was the only object, means must be found by which this money could be obtained.

It soon occurred to the railway managers to "classify" goods; that is, to charge one price for one kind of goods and another price for another class. Thus the price charged for conveying a ton of carrots would be much less than for a ton of broadcloths. This is not differential rating; it is "classification" and to a certain extent, it is not only justifiable, but necessary. For instance, it would be neither convenient nor profitable to attempt to carry live stock and crockery in the same vehicle. They must be separated. Classification, however, in the effort to get "all that the traffic will bear," has been pushed to an undue extent, and been made a grievous burden.

The Stockton and Darlington railway was opened on the 10th October, 1825. The Manchester and Liverpool followed in 1830, and the first through line, the Birmingham and London, in 1838. Then it was that the real trouble began, and the present vicious system was rapidly developed.

The change in the cost of carrying goods long distances by rail instead of by horsepower was so great, that the heavy charges made by the railway companies were hardly felt for a time, but prices soon began to adjust themselves, and experience showed that the rates charged killed the long distance traffic.

The companies, by their charters, were empowered to levy tolls (note the idea of a toll-bar) at so much per mile. After a time, it was found out that these mileage rates could not be enforced, because the constant piling up of an additional toll or charge for every mile passed over, could not be borne except by goods which carried a large profit. This was the difficulty that first gave rise to the differential rating system.

The controllers of railways soon apprehended what a mighty engine this system

Price, 2d.

All profits go to the funds of the Railway Reform League.

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was for extracting money from the pockets of other people, and transferring it to their own. Not only did it give them great opportunities for making money directly for the use of the railways, but as I shall show further on it gave them an immense command over the trade, commerce, and land values of the country.

It is probable that the earliest form of differential rating was giving "through rates," that is to say, rates from point to point, as from Birmingham to London. These rates were often given at less than the price charged for only half the distance. This constitutes a differential rate in favour of the large centre, and against the weaker districts. It is manifestly unfair, especially when mileage rates are used.

As the necessities of the railway companies became greater, worse forms of differential rating crept in. Thus the companies, if they could not get their regular rate from a customer, would take a lower one, while a less powerful customer would have to pay the full rate, and in process of time it became such a matter of bargaining that everybody had to "inquire at the station" for their rate; and, according to Sir Edward Watkin, there were over ten million (10,000,000) different rates in existence in 1881, on one railway alone, the Great Northern of the United Kingdom.

Up to quite a recent period a pretence has been made of regulating railway charges by the "cost of service". We hear but little of this now, the railway men claiming instead that they have the right to charge "what the traffic will bear" That is to say, to take all they can get.

The forms of differential rating are very various. Perhaps the most common is the result of inquiring at the stations for a rate. Mr. Maxwell, in a letter to the Auckland Chamber of Commerce and in one of his reports, which I shall afterwards quote, has openly expressed his wish to drive the users of New Zealand railways into this position.

A man "inquires at the station" for the rate for conveying, say, 2000 sheep to a given point. He is told the rate as per tariff, and if he is absolutely dependent on the railway this rate will be adhered to, unless he has a friend at court, in which case, or if he can drive or send them by water, he will probably get his sheep carried at half the rate.

A poor man with only 30 head applies at the same station. He will get no consideration whatever, but must either pay the full rate or drive his sheep.

This is a differential rate in favour of the rich and against the poor man, as indeed all differential rates may be said to be. The railway men say it is given to "develope industries." Whatever the intention, the effect is to develope monopoly.

The following are some other forms of differential rating.

Large users of railways arrange that in their monthly freight bills they are to receive a certain portion of the amount back by way of discount, rebate, drawback, or allowance of some kind. This practice has been almost universal in England and America.

A worse form is "secret rating." A speculator or manufacturer will enter into a secret contract with a railway company or owner to take his goods at a certain rate. He on his part undertakes to pay them not less than so much per month or per annum, and the railway owners on their part agree not to carry the same class of goods for any other producer at less than say double the rate they charge the contracting party. Both parties to this contract enter into heavy bonds not to divulge its nature.

Imagine a transaction like this, being, as it now is. perfectly legal on our New Zealand railways.

Another form is to call 100 miles 50, 60 or 70 miles only. We have more than one example of this class of differential arting in New Zealand. On one railway in Canterbury 31 miles is "deemed" to be 15 miles only, and on another 21 miles is also "deemed" to be 15 miles.

There are differential rates in favour of Christchurch and against the rest of the colony.

Another form is to call 15cwt. or 30cwt. a ton, according as the railway controllers may wish to fix a rate in favour of or against any particular individual. This is the way the recent railway frauds in New South Wales were perpetrated.

Sometime ago differential rates were in existence in favour of certain districts in the Waikato; the object was not to favour these districts, but to ruin the Waikato Steam Navigation Company, which the Government succeeded in doing, and then immediately raised the rates.

Another form is to charge one district a certain rate, and in another a rate and a quarter or a rate and a-half for precisely the same service rendered; or to say with regard to certain districts all goods belonging to a certain class shall be charged as if they belonged to goods of a higher classification—that is, a class paying a higher rate.

Both these two last forms have been and still are extensively used on the New Zealand railways. A few years ago agricultural produce generally (class E) was charged a single rate in the South Island, and a rate and a quarter in the North Island. This has been removed as regards Auck- page 3 land, but still remains against Wellington, Napier, and Wanganui. Very heavy differential rates are also imposed against the weaker districts in the South Island.

Both these forms constitute differential rates in favour of the wealthy and against the poorer districts.

Parliament votes subsidies and bonuses to protect and assist weak industries, and at the same time passes an Act to empower the Railway Commissioners to levy rates that will effectually crush these weak industries and also weak districts.

Differential rates have often been given in favour of one manufactory, say, a woollen mill, or a coal mine, and against another mill or mine in the same district. The object of this form of differential rating was to ruin the mill or mine the rates were made against, so that those interested might not only get rid of the competition, but also acquire the property of the ruined owners at their own price.

This form of rating is also now legal on the New Zealand lines, and as, if the abominable Act of 1887 is not speedily repealed or amended out of existence, we run an imminent risk of having it put in force, I will quote instances of what hits been done in this direction.

Professor R. T. Ely, of Baltimore, who has aptly described the present way of administering railways as "Our abominable no-system of railways," speaking of differential rating says, "It is difficult to tell where to begin or where to end on account of abuses, as they are so numerous and momentous. Equally difficult is it to find Language in which to pourtray the sober, scientific truth in regard to these abuses, for their enormity is such as almost to baffle description."

He speaks of one company "of odious memory, whose history is marked not only by theft, wholesale bribery, and legislative corruption, but even by violence, and murder." He says that effective essays might be written on differential rating under such titles as "Corruption no Harm," "Lying no Sin," "Theft no Crime."

I emphatically endorse Professor Ely's condemnation of this system. It is the vilest thing the trading world has ever produced. There is no other thing, not even excepting the liquor traffic, that has brought so much social, moral, political, and commercial degradation and misery in its train as the present "no system" of railway administration.

Years ago I published the following paragraph:—

"If the whole history of commerce, from the earliest times, was searched with the minutest care, I do not believe it would be possible to find in its darkest records anything to equal the differential rating system for unmitigated dishonesty. How it could have come into almost universal use I cannot imagine, and still more do I wonder that our great writers have failed to notice and point out the enormous influence for evil it must have on commercial and social affairs."

Yet we have passed an Act, one of the main objects—if not the main object—of which is to fully develop this evil amongst, us, and we have appointed as administrators of that Act two men who are its ardent advocates. Here is what one, if not two, of them says:—

Mr. Maxwell, in his report for 1884, says: "The system of rating differentially in this colony is not carried far enough, and the difficulty that stands in the way is the impatience of the public in submitting to different treatment in different cases, and the reluctance to place in the hands of the railway officers the power which would be necessary for carrying out the principle extensively. While retaining publicity by gazetting each rate, were such a principle more widely introduced, the public would not be able to do what it now, to some extent, essays to do—read and interpret the rates generally; but the practice followed elsewhere would be necessary; the customer would appeal to the station each time he required a rate quoted; and, whether the railways were managed by a Minister or a Board, more power and freedom in respect to rating would have to be placed in the officers' hands. The sensitiveness of the public is, then, the chief difficulty; but this is not allowed to intervene in cases where many millions of revenue are concerned, and can be, no doubt, overcome here by patience and time, provided the colony recognises that the principle is a desirable one, and gives the proper power to administer it. Maximum rates might be fixed by law, and a suitable court of appeal constituted to prevent abuse of the powers given."

Anyone wishing to see what two of our present Commissioners can say in favour of this system, cannot do better than peruse Parliamentary Paper 1.-9, 1886. Mr. Maxwell's evidence, when he was under cross-examination by myself, is particularly instructive.

He first of all took up the ground that it was justified by cost of service, and that it secured "equality of treatment." Driven from pillar to post in his defence of this abominable system, he then said that "you can get it" (equality of treatment) if the conditions were precisely similar. Which is simply saying, if two things are exactly similar, they must be alike. Finally, he page 4 was compelled to say that the sole object of the system was to "get revenue."

In most countries the passenger fare, for distances of from 10 to 15 miles round the great cities, is half the rate per mile that is charged for the longer distances. That is to say, dwellers in the country or small towns have to pay twice the price that dwellers in the city do. It will easily be seen how this must cripple the weaker districts, and make them poorer still.

This is one of the worst forms of differential rating in favour of the great cities and against the country.

As to the meaning of the term "differential rating" when applied to railway working, I define it as meaning any system which gives to the officers or controllers of railways the power to alter or vary fares, rates, or charges at their pleasure, or to suit their idea of the requirements of trade.

At the Parliamentary inquiry in 1886 the officers of the Railway Department asserted that my system was a differential rating system. I therefore submitted the following question to the author of "State Purchase of Railways," the late Mr. Charles Waring, of London.

Mr. Waring, I may state, was formerly a member of the British Parliament, and a very prominent man. His opinion is certainly worth more than that of Messrs. Maxwell and Hannay.

This is what I said to Mr. Waring, "If you can spare the time, I shall esteem it a favour if you will answer me this question:

"As in the system I propose all the fare? and rates will be definitely fixed, for at any rate a number of years, and the officers will have no power to alter or vary them—Can my system be called a differential rating system?"

This is his reply:—"In answer to the specific question you put to me, I hardly see how any system in which rates and fares are established on a fixed basis can be properly called a differential rating system. That is not what we mean when we speak of a differential system in England, and describes, indeed, the exact reverse."

My contention is that all fares, rates, and charges ought to be brought down to the lowest possible point, and then arranged on a fixed basis for a period of years, and only altered then on a regularly defined system. There is no difficulty whatever in doing this; the only obstacle in the way is the self-interested prejudices of the railway officials.

Speaking of the differential rating system Mr. J. F. Hudson, of America, says:—"It cuts down the profits of one competitor, and enhances those of another; and thus acts as a perpetual disturbing force in trade, against which sagacity, energy, and integrity contend in vain."

This is absolutely true, and it is also true that we have legislated with the special object of working this system to the fullest extent. To such an extent has this system been worked in America, that the evidence with reference to it taken by the Legislature of New York alone fills nearly 5000 pages.

The author quoted above says: "Discrimination (the American, and better word for differential) between different localities or cities involves the daily exercise by railway officials who adjust freight tariffs of a power greater than that possessed by any civilised Government—except perhaps that of Russia."

What would this writer say to our Act? He would not need to except Russia, there is nothing there to equal it for absolute tyranny.

To give a very limited account of the evil effects of differential rating will occupy the full space of another paper.


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A few Examples.

As our Railway Commissioners have now full power to impose "differential rates" in any and every form, and the public has no remedy whatever, either at law or by an appeal to Parliament, it may be as well if I give a few instances of what has been done under the iniquitous system which has how been legalised in New Zealand.

In order to work this vile "no system" effectively, the first thing to be done is to multiply and confuse the rates as much as possible, so that no one can understand them, and thus compel the public, as Mr. Maxwell says, to "apply at the station for their rate." Anyone who will take the trouble to study the Gazette will see how rapidly our Commissioners are bringing about this state of things.

On the Midland Railway of England there are over 30,000,000 rates. Who could pick the legal one from such a mass?

In my last paper I quoted Mr. Maxwell's statement that differential rating was not carried far enough in New Zealand, and also that "maximum rates might be fixed by law, and a suitable Court of Appeal constituted to prevent abuse of the powers given."

One hardly knows what to think of this suggestion of Mr. Maxwell's. Is he simply trying to throw dust in the eyes of the public, or is he so supremely in the dark as to what is going on in the railway world, as to believe that such a course could be any protection to the public.

Such a tribunal has been in existence in Great Britain since 1873; and here are a few examples of what the Railway Companies do every day in open defiance of it; indeed, with such thorough contempt do the Companies treat the law and the Railway Commissioners (whose business in Great Britain is to protect, not oppress, the public) that they do not hesitate to publish these excess charges in their rate books.

London and North-Western Line.

Fifty-five miles: Maximum legal rate for minerals, 5s 5½d per ton; rate charged 11s 8d, or 6s 2½d in excess.

Fifty-five miles:—Manchester goods, &c.: Legal rate, 10s 10d; rate charged, 22s 6d; excess charge, 11s 8d per ton.

Fourteen miles:—Boots and shoes, &c.: Legal rate, 24s 3d; rate charged, 55s; excess charge, 30s 9d, for transporting a ton only 14 miles.

Cork and Bandon Line.

Cork to Bandon, 20 miles. The following charges are made over and above the legal maximum rates per ton:—

Drain pipes, 2s 6d; hides, 3s 9d; wool, 2s 11d.

Cork to Drimoleague, 45 miles: 5th class, overcharge, 11s 11d per ton; 6th class, 26s 11d.

Birkenhead Railway.

Coal Rates: Legal rate per ton for 6 miles, 3d; rate charged, 9d. 10 miles: legal rate, 7d; rate charged, 1s 1¼d. 17 miles: Legal, 1s 1¾d; charged, 1s 8¾d.

As examples of preferential rating, I quote the following, given on the Caledonian Railway in favour of the Aberdeen Commercial Company

Ordinary rate: 3 miles, 1s 3d; rate to Commercial Company, 5d. 22 miles: Ordinary rate, 4s 6d: to Commercial Company, 3s 4d. 42 miles: Ordinary rate, 8s 4d; to Commercial Company, 5s 4d.

I speak within bounds when I say that thousands of similar instances to the above could be produced. I have selected these few at random; they are by no means the worst that can be found. Professor Hunter gave evidence before the British Royal Commission of 1881, that the companies charged from three to ten times their legal rates.

Mr. Findlay gave evidence before this Commission to this effect, "I believe that to certain stations north of Sudbury or Harrow we charge a higher rate than we do to London, simply because it is within our power."

Mr. Waring says that "The unalterable rule of the railway directors is to get all they can" and shows that the law is futile to protect the public.

However, we need not talk of law in New Zealand. There is no law for the public in this country. The law has been most care-fully drawn to protect the Commissioners from the effects of wrong doing in their efforts to "get revenue "from the public, but as to the people, they must take their chance as best they may.

Seeing that our railways are now worked as if they belonged to a company, and on "commercial principles," if such a term can be applied to a thing that is utterly and absolutely without principle, it may be as well to pursue the subject a little further, and show some of the things that have been done in America under the system we have page 6 legalised here. I present only a few of more notorious cases.

In America there exists, or recently did exist, a set of men called "eveners." A number of railway companies agree to "pool" their traffic and profits, each line taking a certain agreed-upon per centage. The "eveners" enter into a contract to "even up" these percentages, in consideration of certain rebates allowed to them, but refused to everybody else.

A party of these men in Chicago entered into an engagement with the various trunk lines running East from that city, by which they were to receive from the companies forming the trunk line "pool" a rebate of £3 on every car load of live stock that passed over their lines. This rebate was paid them not only on live stock shipped by them-selves, but also on all the live stock sent over these rails by other people. The effect was that they secured an advantage of £6 per truck load over those competing with them, whom they soon brought to ruin, and thus secured a virtual monopoly of the trade.

As showing the power this differential rating system gives the controllers of railways over any particular industry these gentlemen may chose to speculate in, I direct attention to what was done with the coal trade of Pennsylvania.

The owners of certain railways in that State were also owners of certain coalmines and they wished to acquire a monopoly of the coal trade, and also to keep down the wages of the men employed in the mines. The miners had struck for higher pay, and the private mine owners yielded to their demand. The railway companies, however, determined not only to keep down the price of labour, but also to ruin these owners, and acquire their property for themselves.

They therefore raised the freight rates to the private owners to three times the former rate, the result being that they soon secured 195,000 out of a total of 270,000 acres of coal land. Having thus acquired the monopoly they proceed led to limit the output so as to keep up the price. This they did by suspending operations for a quarter of the working time in each year.

I commend this fact to the careful consideration of what are called the working classes, and would impress upon them the fact that our Railway Commissioners have it quite within their power to do these things here, and that there is no law or power of any kind that can punish them for so doing.

There is no class of trade or commerce that the abominable system it is intended to fully develop among us cannot reach and destroy, or turn to the private advantage of the controllers of the railways, or those they may wish to favour.

The New York Central Railway Company entered into a contract with a firm of millers by which they undertook to carry all their freight for forty seven per cent, of the current rate, "provided, however, and this agreement is made upon the express understanding and consideration that the said millers shall regard and treat this agreement as confidential, and will use all reasonable precautions to keep the same secret."

By means like these dozens of mill-owners were ruined and their property acquired by the favoured few who had "gotten in on the ground floor" with the railway magnates. To one unfortunate fellow who complained that the freight charged him absorbed nearly the whole of his profit, they said "Send us a statement showing the details of your business, in order that we may see that your profits are not more than you represent them to be." Knowing that he was entirely in their power, and hoping to make friends, he sent them the statement. They immediately raised his freight rates, so as to absorb the whole of his profits, and very speedily had him in the Bankruptcy Court and his property in their possession.

The most notorious of all these cases is that of the Standard Oil Company. It would be impossible in the space of this paper to give a description of the transactions of this company with the Railway Companies. Briefly, the railway people entered into a secret contract with the Standard Company, by which they undertook to give them such special freight rates as should effectually secure them against all competition in the petroleum oil trade. The result has been that the Standard Company soon ruined all their competitors, and now enjoy a complete monopoly of the oil trade, a monopoly the effects of which have been felt all the world over.

It has been proved in evidence that the differential rates given in favour of this company amounted during ten years to the enormous sum of one hundred million dollars (£20,000,000). This was almost as disastrous to the shareholders in the railway companies as it was to the competitors of the Standard Company. This case is a good illustration of what the controllers of railways have the power to do.

I commend the examples given above to., the earnest, careful consideration of my fellow-colonists, and I direct their special attention to the fact that we have given to three absolutely irresponsible men—two [unclear: o] whom are known to be wedded to this system, such powers to enforce it as have page 7 never before been held by any company or other set of men in any part of the world.

If we are simple enough to imagine that sooner or later these powers will not be taken advantage of, we deserve the fate that will surely come upon us.

I know that our Commissioners say that these practices "are not in force on the New Zealand railways and never have been." Perhaps so, but in their mad attempt to "get revenue" out of their "abominable no-system" they will soon be driven to their wits' ends, and what then? Ah, what then? I say they will resort to more differential rating.

The question is, is there any necessity for using this system? I assert emphatically, that if the intention is to use railways honestly, in the interests of the whole people, that there is none whatever.

The only legitimate excuse that has ever been urged in favour of differential rating is the statement that it brings the distant producer nearer to his market. The introduction of a stage system would effectually do away with this excuse. Then all fares, rates, and charges ought to be taken down to the lowest possible point and made fixed and definite for a number of years.

If this were done, and there is no legitimate reason why it should not be, the expansion of trade and commerce would be something enormous. People would have confidence in establishing industries in suitable localities; now they never know when the railways may be used to ruin them, therefore manufacturing industries are only started in the immediate neighbourhood of great towns.

Under such a system our railways would act as fosterers of our national industries. As it is, the Railway Commissioners use our railways, and exert themselves to the utmost to destroy our coastal and river steam companies, our tramcar, coach, omnibus, dray, and lorry proprietors.

What an act of folly! How can we expect to prosper? If our railway transport charges were made fixed, and at the lowest possible point, these other transport agencies, in-stead of competing with the railways, would naturally adjust themselves to their proper positions, and act as feeders to them. They would, as it were, work at right angles to, instead of, as now, on parallel lines with our railways.



Wilsons and Horton, Printers, Queen and Wyndham Streets.