GIFT OF 
 
Why Governments Fail 
 
 in 
 Commercial Enterprises: 
 
 The Fiscal Barrier Between 
 Plan and Execution 
 
 BY 
 
 A. LINCOLN LAVINE 
 
 American Telephone and Telegraph Company 
 
 Commercial Engineer's Office 
 New York 
 
Why Governments Fail in Commercial 
 
 Enterprises: 
 
 The Fiscal Barrier Between Plan 
 and Execution 
 
 By A. LINCOLN LAVINE 
 
 S o S fTe wlTh a - printin S P la t in Cincinnati, Ohio, belonging to 
 lack of funds f*^ 1 * r f mzations in th * world, shut do for 
 
 In another branch of this same concern, in New York City two 
 
 recording clocks lay unused for three months. During M that 
 
 time there _ was no money to be had for their repair Tta dollars 
 
 would probably have repaired the clocks. The concern ownL them 
 
 " reV6nUe m ' re thM tw - thirds f " 
 
 I as Buth w - rs mon 
 
 But the clocks remained useless. There was not even ten 
 cents on hand available for their repair. 
 
 the concern in question is the United States 
 
 3sasrr? 
 
 rt is ,t is not easy to point out, in this situation, the political 
 s of omission or commission which go to make un the le^im^ 
 
 mCkraker - Th6 SUSpended P rint **&* 
 
 dW ,w, r - 6 SUSpene P rint **** 
 charac ef is kS f are Iess . s y ra Ptoms of a curable disorder, than normal 
 
 jtafti** pec ! system - They are ^pJy the result f ^ 
 
 every branch of governmental endeavor 
 s ghost, "will not down." 
 
 3 
 
 347250 
 
This law is the offspring of two forces,! a fiscal theory, and a 
 
 Apolitical practice : both apparently necessary to run a government, both 
 
 ever present in all governments, and both fatal in leaving a vulnerable 
 
 spot in the government's make-up, an Achilles' heel, which seems to 
 
 place a definite limitation upon what a government can do, and do well. 
 
 ^ 
 
 The fiscal theory is, that not a stitch of governmental work can 
 be done not a dollar spent without some definite appropriation there^ 
 for; so that if, (as was actually the case a few years ago), the travel- 
 ing allowances of the officials of the railway mail service, whose duties 
 consist in personal inspection of the efficiency and needs of the service, 
 happen to reach the limit set by the appropriations, the men are com- 
 pelled to quit work absolutely, although this in no way hinders them 
 from later collecting salaries for the work they didn't do. 
 
 The political practice is, that no matter how much time and toil 
 and money may have been expended instructing Congress as to the 
 wants of the departments when the time comes to respond, the vot- 
 ing of appropriations is governed not by the actual needs of the ser- 
 vice, but by the political needs of the moment. Secretaries of the 
 Treasury, professors of political economy and other fiscal experts 
 have heaped up a veritable mound of literature, calling attention to 
 the situation, and urging some kind of reform; but unfortunately the 
 fact remains, that those who hold the government purse-strings are 
 not, and cannot be, in a position to do intelligent spending. 
 
 To illustrate, let us see how Uncle Sam lays out his dollars in tak- 
 ing care of his various enterprises. 
 
 Congress, upon assembling each year in December, receives a 
 "Letter from the Secretary of the Treasury." This "letter" is a 
 document of no mean bulk, full of statistics purporting to show how 
 much money the government will have to spend during the coming 
 year to run its business. The document is technically referred to as 
 the Annual Estimates. Now, no Congressman imagines for a minute 
 that these Estimates represent the Secretary of the Treasury's mature 
 and deliberate judgment of what it should cost to run the government 
 for the coming year. Every Congressman knows just how the formid- 
 able array of statistics presented to Congress was got up. He knows 
 that the imposing tables of figures were prepared by the various depart- 
 ments at the beginning of their various tasks shortly after July 1st; 
 that the bureaus proceeded solely upon the basis of the current year 
 to guess at their probable needs for a financial year which was not 
 to begin for twelve months to come, and not to end until almost two 
 calendar years had elapsed after the time when the work on the 
 estimates began. He knows, what is more, that the Secretary of the 
 Treasury has practically no say whatever in getting up the estimates, 
 that, for instance, if the War Department should multiply or divide by 
 ten its previous estimate for river and harbor expenditure, the Secre^ 
 tary must remain silent, and embody the estimate in his "letter." 
 
It is not surprising, therefore, that when the Estimates are passed 
 on to the House appropriation committees, they are treated as a mere 
 collection of guesses, not to be taken seriously, and to be used as a 
 guide the roughest of guides only when political considerations are 
 absent. But political considerations are rarely absent. Only too often, 
 when the needs of a service have become exceedingly pressing, special 
 estimates are compiled after long and scientific study, after laborious 
 and expensive research, to be lightly tossed aside by the appropriation 
 committee, because political expediency at the time happens to run 
 counter to the needs of the service. But this is not all. When the 
 nominal needs of the service have adventured through the committees 
 and are presented to the House, they are subjected to the fire of new 
 influences, new opinions, new and extended possibilities of political 
 pressure. And when, in their modified, battered or distorted form, 
 they have passed through the House, they must run the gauntlet of 
 the Senate. Then the Executive approves or disapproves. 
 
 The results, of course, are natural. Illustrations are constant!^ 
 recurring. Not long ago, a great transatlantic steamer struck bottom 
 in New York harbor. Most people called it an "accident." It was not 
 an accident. It was a direct result. The money which should rightly 
 have gone to the improvement of that harbor had been diverted, in 
 the name of political expediency, to the scooping out of some useless 
 bayou, which never will be a harbor, and which, if it could be made 
 one, would never be used. Had this been up to a private company, a 
 great hue and cry would have been raised, and rightly so. The private 
 company would have been held strictly accountable. But the govern- 
 ment was able to ignore an important public need with perfect im- 
 punity, and escape any accountability for the direct result of a dis- 
 criminatory diversion of funds. 
 
 This is only one of countless examples. Under our system of 
 government, a small majority of either house, or the Executive, may, 
 by cutting off financial support, starve or temporarily paralyze any 
 important public need. Take so vital a branch of government activity 
 as the federal civil service commission. Not only its vigorous adminis- 
 tration, but its very existence, is being threatened annually, not by 
 the repeal of the 'law under which it exists, for that would not be 
 tolerated by the sentiment of the country, but by a small crowd in 
 one house temporarily securing sufficient power to jeopardize its fiscal 
 support. It takes constant lobbying on the part of its friends to keep 
 it from this form of submersion. This is even true of state legisla- 
 tures. In the state of Colorado, a few years ago, the civil service work 
 was absolutely abolished by a failure of the legislature to provide the 
 necessary appropriation. 
 
 All this does not mean, necessarily, that the machinery of Ameri- 
 can government must be remodeled. It is simply an indication of what 
 a government may undertake with profit, what it may or must do 
 itself, and what it might better leave to others. For when we pass 
 
 5 
 
from the simple and necessary functions of government to those of a 
 commercial nature, difficulties multiply, and evils widen into a sea. 
 The post office business has been taken as an example. Yet the post 
 office, as a business, is comparatively simple. Unlike the railroad, 
 telegraph or telephone, it has practically no "plant" to look after, no 
 complicated equipment to worry about, no intricate organization to 
 maintain. As Professor Daniels, recently appointed Interstate Com- 
 merce Commissioner, has pointed out: "Where other enterprises call 
 for venturesomeness and speculative activity, the post office requires 
 orderly routine; where the former demand much fixed capital, the 
 post needs comparatively little ; where in ordinary business transactions 
 prices vary for the same service, the post office has always one price 
 for the same service; * * * where the freight agent is puzzling 
 over a complicated tariff, the postal clerk has the same simple regula*- 
 tions to guide him today and tomorrow." 
 
 (/ There is no need to theorize on this subject. Foreign governments 
 have furnished a striking object lesson of this truth, for which chapter 
 and verse can be cited. If we take a single utility, the telephone, and 
 trace its management under the various foreign governments which 
 have assumed its operation, we learn a story of neglect and starvation 
 to which this utility has been subjected, with grave and far-reaching 
 results, for which our government, fortunately, can furnish no parallel. 
 
 telephone service in Great Britain is operated by the govern- 
 ' ment, which assumed complete controlabout two years ago. The 
 rapid deterioration in telephone service which has followed, has raised 
 a veritable storm of protest and disapprobation, which even the strong- 
 est opponents of Government Ownership did not dare to predict. The 
 British press teems with editoTial attacks upon the management, with 
 letters from irate subscribers bitterly condemning the service, with 
 accounts of delays, mismanagement and confusion in the handling of 
 the enterprise by the government. All this is heaped upon the head 
 of the Postmaster-General, who has charge of the service. Members 
 of Parliament protest in heated speeches, and blame the Postmaster- 
 General ; Chambers of Commerce send deputations laden with petitions, 
 and blame the Postmaster-General ; writers satirize, speakers anathe- 
 mize, and business men expostulate, and all blame the Postmaster- 
 General. Only the Postmaster-General himself, perhaps, and one or 
 two of the more sober members of Parliament, realize that the trouble 
 with the service has been the trouble with the government itself. The 
 Honorable C. S. Goldman, M. P., has put the whole matter in a 
 nutshell : 
 
 "Telephones in this country were a private commercial venture. The 
 Government owned the telegraph and tried to throttle the telephone. In 
 1892 the Government forced the company to sell its trunk lines, and although 
 it has made a parade of figures showing the large amount of mileage of trunk 
 lines added, the service has never kept pace with public requirements, and 
 there has been a constant stream of complaints from Chambers of Commerce 
 and other public bodies, as well as from individual users. The truth is the 
 
 6 
 
Government made a Cinderella of the trunk lines, to the end that their 
 favoured telegraph should remain the belle of the wires. 
 
 "In 1898 they went further. They themselves started competing in Lon- 
 don, and cajoled provincial municipalities to do the same. Disappointment 
 and failure again! But a harassing failure to the Telephone Company and 
 the customers of all services. So in 1904 an agreement was made to pur- 
 chase in 1911 the company's undertaking. As to the price, I say nothing. 
 I am merely thinking of public convenience and an efficient service. But as 
 to the Government's inaction between 1904, when they became potential pur- 
 chasers, and 1911, when they were actual possessors, I have to say much. 
 The company had contracted to sell at tramway prices. On that basis they 
 could not be expected to develop and substantially maintain the service. The 
 Government had a price contract with a time fixed, and they had accepted 
 the responsibility for the efficiency of the service in the future. They could 
 and they should have arranged. 
 
 "It was the duty of the Government, having assumed by that agreement 
 the responsibility of providing the service from January 1, 1912, to insure 
 that when that time came everything should be in readiness for the great 
 development of the service, which they themselves from time to time stated 
 would take place when they took over the plant. They could and they should 
 have arranged with the National Telephone Company that the company should 
 have continued its normal operations, but that ample provision for the after- 
 purchase period should be made at the expense of the Post Office. 
 ***** ******* 
 
 "Beyond the provision of the new exchanges at Avenue and exten- 
 sions to a few of his own exchanges, there is no evidence that the Post 
 Office took any steps in the matter, and these operations were largely under- 
 taken in order to avoid purchasing the corresponding exchanges of the com- 
 pany an attempt which was not successful. In fact, what the Government 
 in effect did do was to paralyze the service for seven years, so that they 
 might buy it cheaply, and then well, every telephone-user knows what he 
 has dropped into. Even the Postmaster-General had to admit that the opera- 
 tions were bungled." 
 
 It is the same trouble, the joint off-spring of the fiscal theory and 
 political practice inhering in all governments, the fatal gap between 
 the public purse and the public plant, which has been responsible for 
 Great Britain's telephone plight today; so subtle, that few Britons 
 besides Goldman have been able to perceive it; so deep-seated and 
 vital, that all the Postmaster-General's desperate efforts to improve 
 the telephone service have proved of little avail. 
 
 i- l^Li we turn to France, we find the lights and shadows in the 
 ture of government mismanagement still more clearly portrayed. The 
 French government acquired a complete monopoly of tHe telephone 
 service as early as 1889. The French telephone service is today if 
 we may accept a characterization made by French government officials 
 themselves, the worst that can be found in any of the larger civilized 
 countries of the world. The service is so slow and unreliable, that 
 business men frequently employ messengers, instead of resorting to 
 the telephone. In service between cities, communication is often more 
 rapid by railroad than by telephone. And back of it all we find the 
 same reason : lack of systematic financial management, inherent and 
 unavoidable. The head of the telephone service will submit to the 
 Chamber of Deputies a hundred chapters of minute and elaborate 
 
 7 
 
statistics. "We must have so and so many francs for construction 
 and improvement, or the telephone service will continue to deteriorate." 
 The appropriating body will receive the demand, and with it, perhaps, 
 hundreds of chapters of statistics from other departments. Nearly 
 800 chapters are sometimes submitted by the twelve ministers who 
 constitute the department heads in France. The budget committee is 
 literally swamped with statistics. Even if the members were entirely 
 free from political considerations, they could not possibly frame a 
 proper business judgment on the needs of each service. The outcome 
 is only natural. The telephone administration may ask for an appro- 
 priation of a hundred million francs to carry out a wise plan of con- 
 struction and equipment, which would result in annual economies and 
 bring the telephone service up to the requirements of the public. The 
 call is simple: "A stitch in time, to save ninety and nine." But if the 
 appropriating body considers it better, politically, to expend money 
 for warships, or waterways, or public buildings, the telephone budget 
 will be cut in two, and the telephone department must shift as best it 
 can on "short rations." This may mean no rations at all, for a hun- 
 dred millions may be an absolute minimum, without the expenditure 
 of which the proposed construction would be useless. Here is the 
 story of Deputy M. T. Steeg, (translated from one of the French 
 Senate Documents) : 
 
 "The history of the telephone is only the story of successive programs, 
 very brilliantly conceived, but never realized for lack of resources. 
 
 "In 1889, after the purchase of the private exchanges, the multiple switch- 
 board appeared in the United States. The Administration should at once 
 have abandoned the old boards which the 'Societe General des Telephones' 
 had left us. Thus came about the complications and delays which our old 
 Paris subscribers still remember. 
 
 "Again in 1894 a program of extension of the telephone system was 
 worked out. This provided for the construction of six new Centrals and 
 was to be carried out within two years. 
 
 "Next a new system of operation, introduced in 1900, obliged the Admin- 
 istration to perfect its material. This work, which the Administration prom- 
 ised to finish in a short time, was not even finished in 1905. In fact it 
 never was, for technical progress had then already condemned these former 
 methods of operation. After 1905, the Administration abandoned the ancient 
 conceptions, and the program of 1906 substituted at last the central battery 
 system. But instead of replacing at once the old apparatus with new, the 
 Department tried to transform and adapt existing apparatus, an economy 
 which cost the Paris system three years of bad service. 
 
 "The transformed apparatus was worn out at the end of four years but 
 funds to replace it were lacking. The Administration could not borrow the 
 money needed, and, therefore, was forced to resign itself to its fate. 
 
 "The flat rate subscription is costly and prohibitive for a large number 
 of individuals. A decision of May 7, 1901, promised a reduction to 300 francs 
 which has never been realized. The preceding government had issued a 
 decree intending to substitute for the flat rate the message rate. For this it 
 needed 33 million francs to carry on the work of building new offices and 
 for installing new apparatus. But where to find the money! As the General 
 Budget refused to advance so large a sum, it was proposed to use the gross 
 receipts of the interurban circuits after reimbursing in a lump sum the depart- 
 
 8 
 
ments. This amount was to be used for reorganizing the Paris system by 
 delaying the development of the provincial telephone lines. The Budget Com- 
 mission opposed this measure. 
 
 "Next M. Millerand took up the study of the bill, completed a program 
 of reforms and was looking for a disinterested person who would lend him 
 the 100 million francs needed to effectuate the plan. Not being able to borrow 
 for the needs of the service the Administration asked the Chamber of Com- 
 merce of Paris to do what the Administration itself was incapable of doing." 
 
 Sometimes the French government, to make up for its neglect 
 in past years, will furnish an extra heavy appropriation. The result, 
 of course, is not a healthful replenishment, but a glut. Extravagant 
 and careless expenditure become the order of the day. An example 
 of this is the elaborate central station which was recently built in the 
 Rue des Archives, Paris. This structure, which one Frenchman char- 
 acterized as "the Babylonian palace of Parisian telephony/' cost 
 upwards of 7,000,000 francs. Architecturally, it is beautiful. Tele- 
 phonically, it is a farce. It was built to accommodate a section havirfg 
 3,000 subscribers. The annual rate of increase in subscribers at that 
 point, as estimated in the French Budget Report, is 120. The two 
 switchboards in this section are designed to accommodate 20,000 sub- 
 scribers, leaving 17,000 lines unused. On this basis, it will take 140 
 years before the switchboards will come into full use! "After an 
 attempt such as this," ironically observes the Official Budget Reporter, 
 "will anyone dare to accuse the Administration of lack of foresight?" 
 
 A striking example of the starvation-by-neglect tendency of gov- 
 ernment management is that of the Gutenberg exchange, in Paris. 
 After a dozen years of telephone stagnation during which period 
 there were years in which no telephone appropriations were made at 
 all, and years when appropriations were so large that they could not 
 be used before they were withdrawn the government installed the 
 "common battery" system in the Gutenberg exchange. This system 
 had long since been adopted in America; but in France it was still 
 regarded as a new improvement. No sooner was the system installed, 
 than the French government was warned that it should provide ade- 
 quate electrical protective apparatus to avoid trouble from high- 
 voltage currents. But the warning fell on deaf ears. The government 
 felt that it had spent enough. The result was a conflagration, which 
 completely reduced the exchange to junk and ashes, and left a large 
 section of the city stranded without telephone communication. This, 
 again, was called an "accident," just as the New York Harbor episode 
 was called an "accident." It was not an accident ; it was a result. 
 
 In Germany, we might expect an exception to the rule. Germany, 
 unlike more democratic countries, is comparatively unburdened with 
 numerous checks and balances, with frequent rotations in office and 
 consequent changes in management and policy. It would be reason- 
 able to assume, at any rate, that if there is any country whose govern- 
 ment should approximate the stability and efficiency of private man- 
 agement, Germany is that country. What have been the results? in 
 
 9 
 
the telephone field, for example, to pursue the illustration which has 
 been adopted. 
 
 } I/The German Empire provides a government owned telephone 
 service, in conjunction with a government owned telegraph service. 
 The condition of the German telephone service is best indicated by 
 the circumstance that, in the fall of 1912, the Imperial Administra- 
 tion decided to send three of its engineering officials to America, ac- 
 companied (to quote the Berlin cablegram published in the New York 
 Times') by "the hopes and prayers of business men and householders." 
 "The trip is undertaken," read the report, "with a view to introducing 
 radical and much-needed reforms in the antiquated German telephone 
 system. Telephones are cheap in Germany, but have few other virtues. 
 The average office and house telephone in the biggest cities costs $50 
 a year, and long distance messages, regardless of mileage, cost 25 
 cents apiece between any points for three minutes. In other respects," 
 the news item goes on to say, "the service is abominable. Telephoning 
 after 10 o'clock at night in cities costs 5 cents extra per conversation, 
 and connections are possible only after a delay of three to five min- 
 utes, owing to the reduction of the daytime staff by about 75 per cent." 
 
 The German Telephone Administration has been particularly criti- 
 cized for its lack of adequate toll facilities. The government will 
 usually maintain only as many long distance telephone lines as are 
 sufficient for official purposes, so that if a citizen wants a long distance 
 call immediately, he pays a premium for the privilege. It is not an 
 uncommon occurrence, in Germany, to stand in line for an out-of- 
 town call for hours, only to be told by a government official that the 
 trunks are all engaged. 
 
 Apologists have sought to explain away these conditions, by assert- 
 ing that the telephone service in Germany was never designed to be 
 primarily commercial, but is rather in line with the fulfilment of a 
 military and political function, originated in Bismarck's policy of 
 railway nationalization. The explanation, however, does not possess 
 the merit of explaining, for Germany has tried in vain to place its 
 telephone service on a commercial basis. Its very failure to do this 
 reveals the true cause of German telephone conditions, and only fur- 
 nishes another illustration of the unavoidable limitation to which all 
 governments are subjected, by the controlling principle of governmental 
 expenditure. We can get "behind the scenes" if we but glance at the 
 German budgetary appropriations for telephone service through a 
 series of years. 
 
 In 1904, the telephone appropriation was 22,000,000 marks. In 
 1905, it went up to 27,000,000. It continued to go up, in 1906, 1907 and 
 
 1908, to 38,000,000 to 45,000,000 and, finally, to 59,000,000. Then, 
 just as the telephone service was beginning to respond to the increased 
 investment, the appropriation was arbitrarily cut to 42,000,000 marks in 
 
 1909, and, again, to 25,000,000 marks in 1910. Naturally, plans were 
 demoralized, the service took a slump, and criticism became widespread. 
 
 10 
 
"A leading German newspaper," said the New York Press, in giving 
 an account of the popular dissatisfaction which followed, "points out 
 that of the 25,000,000 marks only 1,700,000 marks is to be used for 
 trunk wires, against 14,000,000 in the previous year, and only 13,000,- 
 000 is to be used for extension of the system, while 16,000,000 was 
 asked for that purpose in 1909. With the specified amount of 13,000,- 
 000 marks, it is contended, it will require the greatest economy to 
 supply all the required new connections for which there is likely to be 
 a demand. The fact that such a demand will exist is based on figures 
 showing that the number of new stations has increased largely in 
 each year since 1899 except 1908. The appropriation for trunk wires 
 is for the improvement of the long-distance service, and is considered 
 too small because of constantly increasing traffic. * * * It is 
 pointed out that France, by allowing only small amounts for telephone 
 purposes, has come to face the problem of renewing an antiquated 
 system at double cost, and that is construed as a warning to Germany." 
 
 All this, however, was of no concern to the Imperial Government ; 
 for in 1911, the telephone allowance was cut down still further to 
 22,000,000 marks. The appropriation, clearly, was not to depend upon 
 telephone requirements: the telephone business was to wait upon the 
 appropriation. It is therefore not difficult to understand why, despite 
 the usual reserve maintained by German newspapers in their criticism 
 of government enterprises, the Deutsche Zeitung observes that "Heir 
 Reinhold Kraetke, State Secretary of the Imperial Post Office, doubt- 
 less is of the honest opinion that everything is running smoothly under 
 his administration. * * * but the inefficiency of the Berlin tele- 
 phones continues to increase from year to year, and sooner or later 
 conditions will be as bad as they are in Paris. Whoever has tele- 
 phoned, or, rather, tried to telephone, in Paris, knows that he fails 
 about ninety-nine times out of a hundred to get the connection. For 
 the most part, central does not answer at all and if, after a long wait, 
 she does answer, she gives the wrong number. And here the matter 
 ends. The time spent in telephoning is so much time wasted. In 
 Berlin, things have not yet reached such a state of demoralization, but 
 they are fast approaching it." 
 
 The Zeitung, like many of the other German newspapers, saw 
 only the result, and mistook the cause as personal. It is not, of course, 
 Herr Kraetke, nor any other German official, who is responsible for 
 the present condition of the German telephone service, but the sheer 
 inappropriateness of governmental machinery to the management of 
 a commercial utility upon a commercial basis; an inherent defect, not 
 German, but governmental. This is strikingly brought out by the fol- 
 lowing illustration. 
 
 For years, the German Telephone Administration has been strug- 
 gling to effect a single change in policy the revision of a rate schedule 
 which daily grows more inadequate and troublesome. The rate sched- 
 ule now in force in Germany was put into effect in 1899. In 1906 the 
 
 11 
 
government awoke to the fact that the rates had become obsolete, and 
 utterly unsuited to the needs of the service. There was rank dis- 
 crimination between the city and country districts. Complaints in- 
 numerable kept pouring in, and business was suffering badly. Ordi- 
 narily, a private concern would have been forced to settle the matter 
 in a few months, or a half year at the most. But here is a brief sum- 
 mary of the action taken by the German government : 
 
 9n March 10, 1906, the Reichstag passed a resolution "that an equitable 
 distribution of costs between city and country districts be introduced." No 
 action for nearly a year. 
 
 ^ On May 3, 1907, the Reichstag again passed the same resolution. No 
 action for seven months. 
 
 On December, 1907, the Imperial Telegraph Administration published a 
 "Memorial on the Changing of the Telephone Rate Law," with suggestions 
 as to the changes desired. The plan was submitted to a commission. The 
 commission cut out some of the suggestions, substituted others, and passed 
 the matter back to the Administration. The Administration framed a Revised 
 Bill. No action for more than a year. 
 
 On February 8, 1909, the Revised Bill was submitted to the Reichstag. 
 The Bill was favorably received by the Reichstag, and turned over to the 
 Budget Committee. Then the Reichstag closed. No action for eight months. 
 
 On November 29, 1909, the Bill was again submitted to the Reichstag for 
 final consideration. No action for five months. 
 
 In the latter part of April, 1910, the Reichstag again turned the Bill 
 over to the Budget Committee for report. No action for seven months. 
 
 On December 6, 1910, the Budget Committee submitted a report, modify- 
 ing the previous scheme of reform submitted by the Administration. The 
 result was a compromise, to which the Administration agreed, and a new 
 Revised Bill was sent to the Reichstag for a second reading. The Reichstag 
 referred it back again to the Budget Committee. No action for several 
 months. 
 
 On May 4, 1911, the Bill was again considered by the Budget Committee. 
 A new compromise bill was drawn up, which met with such bitter opposition 
 that the Budget Committee adjourned without reaching a final conclusion. 
 
 There has been no report of action since ; only the Zeitschrift fur 
 Schwachstromtechnik in February, 1912, reported the following inter- 
 esting development: "The make-up of the old Reichstag left little 
 ground for the hope that the proposal for a new telephone-rate law, 
 which was advanced by the Government, would meet with a favorable 
 reception, in spite of the fact that the proposition had undergone 
 drastic changes in the Commission. The recent elections have brought 
 about such a change in the relative strength of the parties, that even 
 that last version of the proposal, for which a majority could have been 
 won in the old Reichstag only with the greatest difficulty, has become 
 utterly hopeless." 
 
 Enough has been said, perhaps, to indicate that even Germany, 
 with all the alleged vigor of a monarchical and centralized administra- 
 tion, has been unable to escape the inexorable principle that a govern- 
 ment, by the very nature of its make-up, is incapable of attending to a 
 commercial utility with anything like the benefit to the public which 
 can be furnished by private enterprise. 
 
 12 
 
One more example may be cited that of Australia because 
 Australian conditions are, in many respects, closely similar to those in 
 the United States. The telephone service in Australia was originally 
 administered by the various states which make up the Commonwealth ; 
 but in 1901, the Commonwealth itself assumed entire management of 
 the telephones. It was hoped, by this change, that flagrant evils in 
 the public administration of the services would be eliminated by con- 
 solidation under the Commonwealth. But conditions did not improve ; 
 if anything, they became worse; so that, after years of mismanage- 
 ment, public clamor grew so strong that a Royal Commission was ap- 
 pointed to investigate the Post, Telegraph and Telephone service, to 
 determine, if possible, the source of the trouble. The Commission 
 issued its report in October, 1910. On the whole, it is one of the 
 severest arraignments which has ever been made by a body of public 
 officials against government mismanagement of a public utility. But 
 it is particularly noteworthy in this respect: it places the finger pre- 
 cisely on the sore spot of the whole system. This is what the Com- 
 missioners found: 
 
 "The reason assigned by all the officials for the failure to place the 
 services in proper working order was want of sufficient funds. There is 
 evidence that the Department in 1901 endeavoured, through the Treasurer of 
 the time, to obtain the necessary funds to place the services in an efficient 
 condition by resorting to a loan, but Parliament refused to sanction this 
 proposal. * * * * 
 
 "The result of unduly curtailing expenditure was pointed out repeatedly 
 by the Department, and the required provision was made on the Estimates, 
 but was reduced by the Treasurer. The longer reconstruction is deferred and 
 the longer installation of a new system is postponed the more expensive the 
 work becomes, on account of extensions made to the old system. Construc- 
 tion methods were found to be practically the same as in 1901, as the Depart- 
 ment claimed it had been impossible to improve those methods since that 
 date, although the adoption of improved methods would obviously have tended 
 towards economy. It may be mentioned that between 1886 and 1904 the New 
 York Telephone Company's plant was reconstructed three times to bring the 
 equipment up to the highest standard, and to render the service more efficient. 
 From 1900 to 1907 the Bell Telephone Company, United States of America, 
 spent about 70,000,000 on telephone undertakings." 
 
 The Commission then goes on to describe the antiquated switch- 
 boards, ill-kept lines, impaired efficiency and general demoralization in 
 service, which naturally flowed from the policy of financial starvation 
 that characterized the government's management from the start. 
 
 And so we might go on, pointing the moral from the other govern- .^ 
 ments which have assumed the telephone business,-^ Austria/* Italy, 
 Switzerland and the rest. It is the same story in each case, recalling, 
 with peculiar aptness, Macaulay's description of Johnson's early con- 
 temporaries: "They knew luxury, they knew beggary, but they never 
 knew comfort." The government telephones know extravagance, they 
 know penury, but they never know that continuous and comprehensive 
 financing, without which an adequate service is impossible. In each 
 case we see the same characteristic in varying guises: an inherent 
 
 13 
 
incapacity to administer a commercial utility with anything like the 
 efficiency and promptness of which it is capable, all due to a definite 
 and natural limitation to which governments are subject, as definite 
 and natural as that which has decreed that the brain shall not assume 
 the functions of the stomach, the liver or the heart. 
 
 In the United States, happily, the government has retained its 
 natural supervisory function, that of a brain, if you please. Recog- 
 nizing that a government is far better able to regulate and check abuses 
 of private corporations, than to regulate and check its own, it has so 
 far steered clear of attempting functions for which, by its very nature, 
 it was never intended ; and the result has been decidedly fortunate for 
 Americans. In marked contrast, for instance, to the various govern- 
 mental telephone services we have described, the high stage of perfec- 
 tion reached by the American telephone service, so admired by foreign- 
 ers visiting this country, stands out as an illustration of what may be 
 expected when the development of a commercial utility is allowed to 
 proceed along natural lines. And precisely the element which is lack- 
 ing in governmental administration has been responsible for the effi- 
 ciency and despatch afforded by private enterprise: the deliberate 
 mapping out of a policy, the laying of plans and the spending of money, 
 not only for the day, not only for the morrow, but for the next year, 
 and the next ten or twenty years. It is clear that this element cannot 
 be present, but for an absolute guaranty of stability for a definite 
 period of time in the future: a complete freedom from the gusts of 
 opposing policies, political or otherwise, an atmosphere of reason- 
 able expectation that deliberate and painstaking planning will be 
 followed by equally deliberate and painstaking execution. 
 
 There is not a government on the face of the earth capable of 
 this sort of management. No government has been able to escape the 
 natural law that all organisms, political as well as individual, have a 
 definite limitation of functions stamped upon them, beyond which they 
 cannot step, save with harm to themselves and others. Numerous 
 arguments have been advanced against government ownership:) the 
 impairment to the fundamental and primary functions of government 
 which comes from throwing onto its already overburdened shoulders, 
 new and vastly more complicated duties ;^the increased opportunities 
 for political corruption 3 the undue political influence of a growing 
 army of civil service employes, who, by their votes, can force im^ 
 moderate class legislation at the expense of the public $the undemocratic 
 trend toward centralization, militarism and bureaucracy, with its ten- 
 dency to subject individual liberty to a petty officialdom ^improper rate 
 making forced by political pressure, producing deficits which, through 
 taxation, must fall on user and non-user alike ^arbitrary treatment of 
 consumers, inspired by the knowledge that from government there 
 can be no appeal, all these arguments have been advanced, from time 
 to time, against the proposition of government ownership in this coun- 
 try. ^But in the last analysis, it will be seen that these considerations 
 
 14 
 
either spring from or center about a primary law, the natural and 
 inherent limitation of governments: that governments were never in- 
 tended to create, but to conserve and protect ;/that a government is 
 most beneficial when it refuses to overstep its natural limitation, and 
 guarantees to a people a minimum of interference with individual 
 liberty, combined with a maximum of protection against individual 
 abuses. 
 
 When Socrates said, "Know thyself/' he had in mind the disaster 
 which an individual invites when he attempts something Nature never 
 fitted him for. The world is full of misfits in individual vocations : of 
 born artisans who have wasted lives trying to practice law ; of dismal 
 failures in the world of art, who might have been fortunate business 
 men; of mediocre journalists, who might have starred in the profes- 
 sions. The personal tragedy, in each case, lay in a failure to realize 
 the personal limitation; in attempting what might better have been 
 left to others. Far more tragic, because more far-reaching and perma- 
 nent, is it for a government to attempt what it is inherently incapable 
 of doing well. 
 
 This country was born simultaneously with the awakening of a 
 new era in human enterprise. Its progress has come from a free and 
 untrammeled expression of the individual. In the course of its develop- 
 ment, evils have sprung up, the evils of individual license. Prominent 
 among them have been the corporate abuses from which the public 
 has suffered in the absence of sufficiently prompt and adequate inter- 
 ference by government. The result has been some sentiment, of late, 
 for ownership, by government, of the more important utilities, 
 railways, telegraphs and telephones. But we shall profit little indeed 
 if, to right one evil, we establish another more serious. It were far 
 better for government to emulate the example of the human will, 
 which guides and restrains our actions when they become immoderate, 
 instead of assuming the various functions itself. 
 
 It is probably this thought that President Woodrow Wilson had 
 in mind, when he said, in his speech before the Federation of Demo- 
 cratic Clubs in Pennsylvania: 
 
 "The regulation of corporations is hardly less significant and central. 
 We have made many experiments in this difficult matter, and some of them 
 have been crude, and hurtful, but our thought is slowly clearing. We are 
 beginning to see, for one thing, how public service corporations, at any rate, 
 can be governed with great advantage to the public and without serious detri- 
 ment to themselves, as undertakings of private capital. Experience is removing 
 both prejudice and fear in this field, and it is likely that within the very 
 near future we shall have settled down to some common rational and effective 
 policy. The regulation of corporations of other sorts lies intimately connected 
 with the general question which ramifies in a thousand directions, but the 
 intricate threads of which we are slowly beginning to perceive constitute a 
 decipherable pattern. Measures will here also frame themselves soberly 
 enough as we think our way forward." 
 
 15 
 
It is to be hoped that, in untangling the "intricate threads" whi< 
 constitute the "decipherable pattern," the Government of this counti 
 will avoid the pitfalls into which foreign governments have droj 
 in their assumption of extra-governmental functions. The knot is 
 be untangled by the deft and trained fingers of scientific governmei 
 regulation, rather than the knife of government ownership, to th| 
 end that, instead of a jangle of frayed and twisted government entei 
 prises, we shall have a complete and harmonious commercial fabric 
 beneficial to public and public utility alike ; and the growing popularil 
 of our public regulating commissions is a hopeful sign that the genii 
 of American institutions is beginning to compass this truth. 
 
14 DAY USE 
 
 RETURN TO DESK FROM WHICH BORROWED 
 
 LOAN DEPT. 
 
 RENEWALS ONLYTEL. NO. 642-3405 
 This book is due on the last date stamped below, or 
 
 on the date to which renewed. 
 Renewed books are subject to immediate recall. 
 
 SEIVED 
 
 70-fiPM 
 
 LD2lA-60m-6,'69 
 (J9096slO)476-A-32 
 
 General Library 
 
 University of California 
 
 Berkeley