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have scarce any bearing on State affairs. Some good may be hoped, because a Governor of the other party is more likely to check or show up the misdeeds of a hostile Senate or Assembly than one who, belonging to the group of men which guides the legislature, has a motive for working with them, and may expect to share any gains they can amass.
56. PUBLIC SERVICE COMMISSIONS.
Among the problems of State government which have arisen during the last quarter of a century, none have pressed more constantly and prominently for settlement than that having to do with the proper regulation of public service corporations. Ever since the development of the newer forms of rapid transit, cheap transportation, and improved methods of lighting, the corporations which have furnished these services have been a thorn in the side of good government, both State and municipal. In 1906, the State of New York took a long step toward the settlement of this question by the passage of a public service commission law. Similar laws have been passed recently in other States, notably Wisconsin, and still other States have such measure under consideration. In the following selection, Mr. T. M. Osborne, a member of the New York Commission, appointed by Governor Hughes, referring to the law of that State, discusses the relation of public service corporations to the State in general: .
To call this law a piece of radical legislation is to speak mildly; it seems to mark an epoch in the history of New York State; for the corporations affected by the stringent provisions of the law are among those upon which the whole structure of our present business system rests. Without the railroads modern commerce would be impossible; without the street railroads our cities could not spread their vast populations out into their ever-growing suburbs, and social conditions would be completely altered; gas and electricity are not merely essential to our comfort, they are necessary to the existing order— all of these public utilities are vital elements in the lives of every one of us, and a law which compels such a complete readjustment of their relations to the state on the one side and
the public on the other is not merely radical, it is revolutionary.
When our great modern public utilities first came into being, they were not recognized as infant monopolies. When a man wished to build a railroad he was regarded only as a daring adventurer who was about to start a new and superior line of coaches on a strange private highway-merely a new element of competition. It was the same with a gas company, gas being at first only a new-fangled light trying to prove its doubtful superiority over lamps and candles. Electricity was in its turn only a competitor of gas; a street-car line a competitor of the more expensive cab company; an interurban trolley a competitor of the railway. All these were merely new and comparative conveniences which science was putting within our reach, which we could trust private ownership to develop and which competition would regulate. The ordinary American merchant or manufacturer, intent upon his own business and satisfied if he was making it pay, was also satisfied if he was getting from railroad, express company, telegraph, or telephone the service that his own particular business required; and he was little inclined to question the right of investors, who were bringing to him the business advantage of a very useful public service, to do what he himself was doing— make as much money as possible on the investment. And while merchants and manufacturers were thus absorbed and the general public indifferent, what was originally a mere competitive public convenience was fast becoming a public utility; and then, before we realized it, had become an absolute public necessity. We suddenly woke to find the business world struggling to readjust itself to new and strange conditions-to the pressure of brutal bigness; enormous railway systems, gigantic mergers, world-wide trusts, accumulators of fabulous millions; the vast scale of the operations seemed in itself terrifying.
If it has taken us a long time to realize that public-service corporations are in their nature monopolistic, it is also taking us a long time to get over the idea that the safeguard of the
public is competition. Therefore, legislatures have chartered rival railroads and common councils have granted franchises to rival trolley, gas and electric companies; only to find that almost inevitably after a brief period of cut-throat competition, with threatened failure to both companies, there was a consolidation, over-capitalization and relatively, if not actually, higher charges; and thus for the poor consumer the last state was worse than the first.
In New York we seem at last to have waked up to the fact that in these public utilities there not only never has been any genuine competition, but from the nature of the case there never could be; we are also learning that if justice is to be done to the public as well as to the corporation-to the buyer as well as to the seller-something else must be substituted in place of competition, and that something we are now to try in the shape of state regulation.
The policy of state interference in any business is not one that we naturally take kindly to in this country; and we have certainly not been hasty in trying it in New York State. So long ago as 1879, the Hepburn Committee investigation pointed out some of the evils of rebates and other railway practices as clearly as has ever been done; yet it was 1906 before the legislature took any effective action in regard to the matter; and our municipalities as well as the state have been very slow to exert their powers. Of course, opinions will continue to differ as to the advisability of state interference; but in the judgment of those who read best the trend of the public mind, the time has gone by when there can be much dispute over the main contention; the only question is how far the state shall go. For the exact point where private action may best end, and the community itself should take hold, has certainly not been discovered yet; nor is it likely ever to be settled, for social conditions shift quite as rapidly as social experiments are made; and where can we draw the dividing line?
Some lawyers will tell us that there is no dividing line in this particular matter, that there is no essential difference
between a public-service corporation and any other, and that it is simply a question of public policy as to what business the state shall undertake to regulate, and what it shall leave without interference. Others will say that however hard it is to draw a dividing line, yet there is certain territory which is quite obviously on one side of the line, wherever the line may be, and certain territory quite as obviously on the other. Also it seems to be true that a certain business may stand on one side of the line in one generation and occupy the other side in the next. For many centuries it was public policy to subject the innkeeper to stringent regulation in the public interest; but with the growth of modern conditions it has ceased to be necessary, and a modern hotel company can hardly be classed as a public-service corporation. On the other hand, when a virtual monopoly in the supply of some necessity of life has come into existence, that business certainly is drifting over the line into territory where some sort of public regulation seems inevitable.
All the businesses which are placed under the jurisdiction and supervision of the New York Public Service Commission are, more or less, monopolies depending upon some form of public grant or franchise. Not only are our railways great state highways, but the companies that own them own also the means of traversing them and of transporting goods along them. Our street railways occupy the public thoroughfares under exclusive grants from municipalities. The gas companies must get permission from the city to dig up the public streets, and electric-light companies to erect their poles. Express, freight-line, and sleeping-car companies only supplement the work of the railway. Not one would be able to exist except for the public grant which is its foundation; it is therefore to the state that we must now turn for relief against the power of the monopolies which have been allowed to rise upon that foundation.
When we come to a consideration of these franchises the first thing we find is, that, although in most cases the corporation had paid nothing to the state or municipality for the fran
chise, yet no sooner has the franchise been secured than it has been capitalized, often at an enormously inflated valuation, and the resulting securities have been marketed in the same way as those for which good solid cash has been paid.
Now, as a matter of fact, the value of a franchise is very fluctuating a thing impossible to fix. The franchise of a nonexistent railroad is of no inherent value; on the other hand, the value of the same franchise, after fifty years' development of the road and growth of the communities about it, may almost exceed imagination; but since the state has claimed the right to regulate rates, thus demolishing the theory that the railroad conducts a private business, the value of every railroad franchise in the state as a basis for an issue of securities is very materially diminished if not obliterated.
If the franchise is something of value, the state should certainly not give it away; if it is of no value, then the corporation should not capitalize it; but to secure it for nothing and then capitalize it, is "special privilege" with a vengeance. The worst of the matter, however, is this, that when the corporation proceeded to capitalize the franchise, upon the theory that it represented an asset upon which returns in the shape of dividends should be paid-the same as if it were money invested in the enterprise-the corporation was on the one hand receiving from the state a gift of more or less value, and on the other forcing the state to pay perpetual tribute upon the very thing it had given away-to the tune of many times its actual value when the promoters were clever enough to "discount the future" in their issues of stock. When you come to dissect the matter and look it over coolly it does seem as if this were on the whole the most skillful confidence game which has ever been worked on the public; for the experienced financier after capitalizing his franchise, could unload the watered securities on the "widow and orphan" and place the resulting cash in "gilt-edged" investments far removed from inquisitive legislators and public-service commissions.
This is not saying—and let this point be made quite clearthat there have not been many noble and high-minded men