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The Pamphlet Collection of Sir Robert Stout: Volume 76

Differential Rating

Differential Rating.

Note.—I first published the above paper in 1889. The system is still in force on our railways, and the only way to abolish it is to do away with mileage rating, reckon by stages, and make all the charges fixed, the same as postal charges are. There is no reason whatever why this should not be done. The vile system is maintained simply because the officials will not part with the power it gives them.

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 understood 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.

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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 horse power 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 foods 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 was for extracting money from the pockets page 56 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 situation" 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, 2,000 sheep to a given point. He is told the rate as per tariff, and if he is absolutely dependant 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. Ho 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 page 57 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 parities 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 rating 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.

Some time 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 Auckland, 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 page 58 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 has 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 say:—

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 bands of the railway officers the power which would be necessary for carrying out the principle extensively. While retaining publicity by gazetting each rate, page 59 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."

Anyone wishing to see what two of our present Commissioners can say in favour of this system, cannot do better than peruse Parliamentary Paper I. 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 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 raiting 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 fares 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 raiting system?"

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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 if taken by the Legislature of New York alone fills nearly 5,000 pages.

The author quoted above says: "Discrimination (the American, and better word for differential) between different localities or cities involves the daily exorcise 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.