ILF 
 
 3MO 
 
 NATIONALIZATION 
 OF INDUSTRIES 
 
 A CRITICISM 
 
 LORD EMMOTT 
 
TV 
 
 JAMES K.MOFFITT 
 
 PAULINE FORE MOFFITT 
 LIBRARY 
 
 UNIVERSITY OF CALIFORNIA 
 GENERAL LIBRARY, BERKELEY 
 
NATIONALIZATION OF INDUSTRIES 
 
 A CRITICISM 
 
Among the fundamental principles of Liberalism as we have 
 always understood and practised it, perhaps the two most essential 
 are, first, its pursuit of freedom in the largest and widest sense 
 political freedom, religious freedom, economic freedom, civil freedom, 
 and next, its steady insistence upon the rule that in all matters of 
 legislation or of administration the first object for the Legislature or 
 for the statesman to keep in view is the interest not of this or 
 that particular class, but of the community as a whole. 
 
 MB. ASQUITH at Paisley, January 26, 1920. 
 
 Let me sum up in a sentence or two what the effect [of the 
 entire nationalization of industry] would really be so far as I can 
 foresee. It would sap the free-flowing life-blood of British industry. 
 It would enthrone the rule of bureaucrats . It would tend to stereo- 
 type processes, to stand in the way of new inventions, to arrest 
 mechanical and managerial improvement. It would paralyse indi- 
 vidual initiative and enterprise, and sooner or later and sooner 
 rather than later it would, in my judgment, impoverish the 
 community. Therefore, I will give a very plain answer to that 
 question put to me whether I am in favour of the nationalization 
 of industry. That answer is in the negative. 
 
 MR, ASQUITH at Paisley, January 29, 1920. 
 
NATIONALIZATION 
 OF INDUSTRIES 
 
 A CRITICISM 
 
 BY 
 
 LORD EMMOTT 
 
 T. FISHER UNWIN LTD 
 LONDON: ADELPHI TERRACE 
 
First published . . August 1920 
 Second Impression November 1920 
 
 (All rights reserved) 
 
 GIFT 
 
ES 
 
 CONTENTS 
 
 PAGX 
 
 THE CAUSES OF INDUSTRIAL UNREST . . . .7 
 
 THE LIBERAL POINT OF VIEW . . . . .0 
 
 NATIONALIZATION OF ALL INDUSTRY MEANS TYRANNY . 10 
 
 THE ETHICS OF PROFITS UNDER PRIVATE ENTERPRISE . 12 
 
 IMPORTANCE OF SAVING . . . . . .15 
 
 CONCLUSION OF ANALYSIS . . . . .17 
 
 1. NATIONALIZATION UNSUITED TO EXPORT TRADE . 19 
 
 2. DEMORALIZING EFFECT ON POLITICAL LIFE . . 20 
 
 3. INSUPERABLE FINANCIAL DIFFICULTIES AT PRESENT . 22 
 NO RELIABLE STATISTICS AVAILABLE . . . .24 
 DEFINITION OF NATIONALIZATION . . . .26 
 
 ECONOMIC ADVANTAGES CLAIMED FOR THE NATIONALIZATION 
 
 OF INDUSTRY . . . . . .27 
 
 HOW THE NATIONALIZATION OF INDUSTRY WOULD WORK . 33 
 
 1. THE MINISTER . . . . . .33 
 
 2. THE CIVIL SERVANTS WHO ADVISE THE MINISTER . 37 
 
 3. THE REST OF THE STAFF . . . .43 
 
 4. THE MANUAL WORKERS . . . . .44 
 
 THE CASE OF PARTICULAR INDUSTRIES . . . .47 
 
 THE COAL-MINING INDUSTRY . . . . .51 
 
 THE RAILWAYS . . . . . .65 
 
 THE LAND . . . . . . . .70 
 
 AN ALTERNATIVE POLICY . . . . .71 
 
 363 
 
Nationalization of Industries 
 
 The Causes of Industrial Unrest. 
 
 POLITICAL confusion and economic disturbance were 
 natural results of the close of the most gigantic war in 
 the history of the world. Carlyle in his French Revolution 
 spoke of Burke " eloquently demonstrating that the end 
 of an epoch is come, to all appearance the end of civilized 
 time." And if to a political mind of the highest order, 
 such as Burke 's, the circumstances attending the over- 
 throw of an ancient regime in France seemed the end 
 of civilized time, it is little to be wondered at that the 
 state of Europe to-day should appear to be the birth 
 of a new world and to afford a unique opportunity for 
 new and startling experiments in the organization of 
 society. It is indeed only natural that the general 
 ferment should be especially noticeable in the industrial 
 field. Unrest in Labour circles is no new thing, for it 
 existed before the war, but the confusion everywhere 
 and the chaos in a large part of Europe since the armistice 
 has greatly intensified the tendency to excitement in this 
 country. A circumstance that has also greatly added to 
 it is the existence of inordinate profits made in many 
 trades in spite of increased wages, of greatly enhanced 
 prices of raw materials and the rise in other costs of 
 production. The constant answer of Capital when con- 
 fronted with demands for increases of wages in the old 
 days was what in Fabian circles is described as the plea 
 of " ansericide," the killing of the goose that lays the 
 golden eggs. Yet, in the years of good trade before the 
 
8 NATIONALIZATION OF INDUSTRIES 
 
 war, wages were gradually forced up and large schemes 
 of costly social reform were inaugurated, without dimin- 
 ishing profits and the general prosperity of the capitalist 
 class. The fact is that in the conditions of the time, 
 and to the extent to which increases of wages and social 
 reform were then carried, the augmented spending power 
 of the masses resulted in a fertilization of the channels 
 of trade by new money, and this in its turn helped to 
 recoup the very capitalists on whom fell much of the 
 burden of the extra costs and taxation involved. 
 
 It is easy to forget, in the strain of the exciting period 
 through which we have since lived, how quickly trade 
 was expanding in the years immediately preceding the 
 war ; our exports more than doubled in value between 
 1898 and 1913. In 1898 the exports of the produce and 
 manufactures of the United Kingdom were 233,000,000. 
 In 1913 they were 525,000,000, indicating an enormous 
 growth in volume as well as in value. No similar increase 
 in actual value ever occurred before in the history of the 
 country and no such proportionate increase since 1860. 
 
 During the war and since the armistice a vicious 
 circle of rising prices concurrent with high profits, followed 
 by demands for increased wages, which in their turn lead 
 to a further rise in prices, has been set up. In recent 
 conditions of demand outstripping supply, the higher prices 
 were readily paid by the consumer without diminishing 
 the profits of the entrepreneur. So far as the trade is 
 for export, it is to the interest not only of the entrepreneur, 
 but also of the nation, that the highest possible competitive 
 price should be secured. The division of the resulting 
 profits raises questions of policy and equity, but it is to 
 our interest, both from the point of view of our exchanges 
 and of the national dividend, that our export trade should 
 be encouraged and the highest possible prices obtained 
 for our goods. None the less, the fact that these high 
 prices and large profits are so much in evidence adds 
 materially to the present malaise among the workers. 
 
THE LIBERAL POINT OF VIEW 9 
 
 Another cause of industrial unrest is the tendency to 
 amalgamation and combination among capitalists and the 
 corresponding elimination of competition. Although, as 
 I shall show later, these tendencies are not in them- 
 selves a valid argument for nationalization, they have a 
 disturbing effect on the mind of the workers. Even if 
 figures and statistics show that up to the present the 
 consumer has not suffered by these combinations, neither 
 the workers nor the public approve of so much power 
 passing into the hands of individuals or small groups of 
 men as is the case in some latter-day business combina- 
 tions. In so far as they become monopolies they present 
 some of the evils of nationalization, while the profits go 
 not to the nation but to private individuals. 
 
 One further potent cause of industrial unrest may be 
 mentioned, viz. the increased self -consciousness of the 
 worker. There is a growing feeling on his part that he 
 is entitled to a greater share in the control of industry, 
 not only in reference to wages and conditions of labour, 
 but also in order that he may feel himself to be a free 
 man in a free country and may acquire a greater self- 
 respect. This feeling has been greatly stimulated by 
 the war. 
 
 The Liberal Point of View. 
 
 Every Liberal must sympathize deeply with Labour's 
 desire for a larger and fuller life. Equally, everyone who 
 accepts the fundamental principles of Liberalism is bound 
 to investigate whether any particular change recommended 
 would promote freedom in its widest sense, and whether 
 it would be in the interests of the community as a whole 
 and not merely in the interests of a particular class. It 
 is true that the Liberal conception of freedom has grown 
 with the lapse of time and that complete laissez-faire as 
 a cure for industrial evils has lost its attraction, but that 
 fact only makes it more necessary to make sure that the 
 
10 NATIONALIZATION OF INDUSTRIES 
 
 main principle of freedom is kept steadily in view in any 
 programme to which Liberals are asked to assent. It is 
 not sufficient for a Liberal to accept nationalization as 
 a cure for difficulties which have arisen in a particular 
 industry under State control (State control being in itself, 
 except as an emergency measure, antipathetic to Liberal- 
 ism) simply because that solution appears to give a greater 
 interest to the worker in management. He is bound first 
 to inquire what the implications involved in nationalization 
 of industry are, whether they tend to freedom in the long 
 run, and whether they are consistent with the interests 
 of the nation as a whole. 
 
 Nationalization of All Industry means Tyranny. 
 
 Nationalization is advocated at the present time in 
 particular for the coal-mining industry, for railways and 
 for the ownership of land. The most insistent demand 
 is for the early nationalization of the coal-mining industry 
 on the lines of the Sankey Report, involving the complete 
 ownership, control and management of the coal-mines of 
 the country ; but the representatives of the miners accept 
 this scheme merely as an instalment of their own plan, 
 which would give a still greater measure of control to the 
 workers on the governing body as compared with the State 
 and the consumers. It must also be noted that those 
 who are the real driving force in this movement openly 
 claim that the nationalization of the coal-mining industry 
 is only a first step on the road towards the complete 
 nationalization of all industry, and it is in this light, 
 as well as on the merits of their immediate proposal, that 
 their demand must be considered. 
 
 It is impossible for anyone who has any regard for 
 freedom-apolitical, civil or economic freedom and least of 
 all is it possible for a Liberal, to accept as a desirable 
 aim a condition of affairs in which all our industries would 
 be nationalized. The inevitable result of a complete 
 
NATIONALIZATION MEANS TYRANNY 11 
 
 nationalization of industry would be an abnegation of 
 all freedom. Everyone's working life from the cradle to 
 the grave must, in such conditions, be marked out for 
 him and controlled at every stage by bureaucrats. No 
 choice of occupation could be permitted to anyone. The 
 Press would, by the direction of the State, stifle all 
 individual expression of opinion, and neither a man's 
 soul nor body could be called his own. Conscription of 
 labour would be the first result, as unsettled and chaotic 
 Russia has already shown. The claim made by the advo- 
 cates of nationalization that the employee, however 
 humble, should have a voice in saying whether his life 
 is to be spent in circumstances which may lead to its 
 deterioration, would be meaningless nonsense in a State 
 where everyone would be told by bureaucrats what he 
 was to do and imprisoned or shot if he failed to comply. 
 That is the logical result and inevitable outcome of the 
 complete nationalization of industry, and it is in itself 
 a strong reason for exercising the utmost care in 
 examining the arguments on which the claim to the 
 nationalization of any particular industry is founded. 
 
 The claim made by the coal-miners that they are no 
 longer willing to work for private coal-owners and share- 
 holders, and their demand for nationalization of their 
 industry, cannot be considered by itself. How far the 
 claim represents a deep-seated conviction on the part of 
 the great majority of miners, or how far it is the result 
 of skilful propaganda and the real motive is a belief that 
 conditions of work will be more favourable for the workers 
 under State management amenable to constant political 
 pressure, it is not possible for an outsider to judge. The 
 claim is, in effect, a moral one. It rests upon the view 
 put forward by Socialists that profit payable to individual 
 capitalists is an anti-social and even immoral concept. 
 Such a claim cannot be, and is not, confined to the coal- 
 mining industry. If the contention is valid, it applies to 
 all industries. If it is not valid, it applies to none. In 
 
12 NATIONALIZATION OF INDUSTRIES 
 
 any event, the only change proposed is the complete 
 ownership, control and management of the industry by 
 the State, and this change is demanded in the name of 
 freedom. There can be no question that the result of 
 applying this change to all industries would be a universal 
 and grinding tyranny, and all freedom of the subject 
 would disappear under it. The answer to the moral claim 
 in regard to nationalization of the coal-mining industry 
 is, therefore, that it is wholly invalid. The grounds of 
 the claim apply equally to all industries. The only 
 remedy proposed would have an effect precisely the 
 opposite to that desired. 
 
 The Ethics of Profits under Private Enterprise. 
 
 As an answer to the moral basis of the claim for 
 nationalization, the reply given above seems sufficient ; 
 but before passing on to the examination of the economic 
 advantages claimed for nationalization, it seems necessary 
 to examine a little more closely the serious attack that 
 is being made on the morality of the present distribution 
 of the profits of industry. Autres temps, autres m&urs, 
 and we must not take it for granted that the ethical 
 system of industrial organization and finance accepted 
 without demur by our fathers and grandfathers is un- 
 challengeable at the present time. In any case the system 
 is challenged, and the defenders of the old system of private 
 enterprise, and the advocates of the view that profit is 
 immoral, both claim with conviction that they have right 
 on their side. To many old-fashioned people it must 
 seem a crazy idea that the whole scheme of profit-earning, 
 as it has existed Jor centuries in business carried on by 
 private enterprise, should be condemned as immoral and 
 anti-social by any respectable portion of the community. 
 Such people would regard as a pose the pious horror 
 expressed by Mr. Sidney Webb at the Coal Commission 
 when asked whether he had any experience of the manage- 
 
PROFITS UNDER PRIVATE ENTERPRISE 13 
 
 ment of business (on which he dogmatizes so freely), and 
 his repudiation of the suggestion as almost a stain on his 
 character. The business man indignantly asks if anyone 
 outside Bedlam can propose that he is not to receive 
 reasonable remuneration for his time, his ability, his risk 
 and his self-denial in building up a prosperous industry, 
 and if it is seriously contended that he is to be satisfied 
 with bare interest on his capital such as he would receive 
 for lending it to the Government. On the other hand, 
 the working man asks why he should w r ork hard for idle 
 shareholders who take no interest in the business beyond 
 drawing dividends on their shares. It will be noticed 
 that the two questions apply to different aspects of the 
 case and have no relation to each other. They both 
 represent different sides of our present complicated 
 industrial system and both show a case sufficiently good 
 on the surface to attract sympathy. 
 
 The following interesting passage taken from Mr. 
 Keynes' remarkable book on the Economic Consequences 
 of the Peace discusses the matter under consideration with 
 a somewhat detached impartiality. He writes : 
 
 The new rich of the nineteenth century were not brought 
 up to large expenditures, and preferred the power which investment 
 gave them to the pleasures of immediate consumption. In fact, 
 it was precisely the inequality of the distribution of wealth which 
 made possible those vast accumulations of fixed wealth and of capital 
 improvements which distinguished that age from all others. Herein 
 lay, in fact, the chief justification of the Capitalist System. . . . The 
 immense accumulations of fixed capital which, to the great benefit 
 of mankind, were built up during the half -century before the war 
 could never have come about in a society where wealth was divided 
 equitably. . . . On the one hand, the labouring classes accepted 
 from ignorance or powerlessness, or were compelled, persuaded or 
 cajoled by custom, convention, authority, and the well-established 
 order of society into accepting a situation in which they could call 
 their own very little of the cake that they and Nature and the 
 capitalists were co-operating to produce. And on the other hand, 
 the capitalist classes were allowed to call the best part of the cake 
 theirs and were theoretically free to consume it, on the tacit under- 
 lying condition that they consumed very little of it in practice. . . 
 
14 NATIONALIZATION OF INDUSTRIES 
 
 Saving was for old age or for your children ; but this was only in 
 theory the virtue of the cake was that it was never to be consumed, 
 neither by you nor by your children after you. 
 
 In other words, Mr. Keynes, describing the condition 
 of things before the war, states that the distribution of 
 the proceeds of industry was inequitable in itself, but that 
 the very inequality inured to the benefit of mankind, 
 because the recipients of the larger share saved a con- 
 siderable part of their portion, which would have been 
 spent had the proceeds been divided more equitably. 
 On this there is one observation to be made. The " larger 
 share " was not larger absolutely, but larger merely per 
 caput, for the total wages paid to workers in most businesses 
 is and always has been far larger than the amount of 
 profit earned. 
 
 If a new orientation as to profits is required, it can 
 only be obtained equitably after an analysis of the elements 
 of which profit is composed. Profit really consists of four 
 elements : (1) interest on capital ; (2) reward of ability ; 
 (3) remuneration for risk, and (4) exceptional circumstances 
 affecting either the commodities dealt in or the general 
 course of prices. 
 
 It is obvious that the division of profits in these various 
 categories raises questions both of policy and equity, and 
 it is necessary, in order to decide on a line of equitable 
 division for the future, to deal, in more detail than is 
 attempted in Mr. Keynes' summary, with the conditions 
 under which capital has been accumulated in the past, 
 and to consider how far accumulation of the capital 
 necessary for progress is likely to be attained under a 
 system of nationalization of industry. The view of those 
 who advocate nationalization is that all capital should 
 be held by the State. Capital is the result of saving. 
 Whoever heard of a State, as such, saving, even before 
 the war ? It was difficult enough then for every State 
 to make ends meet financially, and it is ten times more 
 
PROFITS UNDER PRIVATE ENTERPRISE 15 
 
 difficult now, when nearly all are groaning under an 
 immense burden of debt. 
 
 Importance of Saving. 
 
 The real question is, whether the conditions under 
 which capital was accumulated before the war are likely 
 to subsist after the war in industries that are nationalized. 
 Before the war the United Kingdom was saving approxi- 
 mately 400,000,000 a year. One half of this sum, roughly 
 was expended at home in extending the coal-mining, 
 shipping, manufacturing and other industries. The other 
 half was invested abroad largely in the form of the export 
 of machinery and other materials, the proceeds of the 
 manufactures of this country. In its turn the interest 
 and profits on the exported capital went to pay for our 
 imports of food and of the raw material necessary for 
 our manufactures. Without this saving the United 
 Kingdom would have been economically unprogressive 
 and stagnant. With it we were, up to the time of the 
 war, the greatest commercial nation of the world. 
 
 This saving was derived from people who lived well 
 within their income and invested the surplus. Almost 
 entirely it came from the income-tax paying class, but 
 by no means entirely from wealthy men. The rising 
 young business man who was successful and, instead of 
 spending his income, invested most of it in increasing 
 his business, was one of the chief factors in the commercial 
 and industrial progress of Great Britain under the system 
 of private enterprise. The socialization of all industries 
 would remove the powerful incentive of personal gain 
 which has served such a useful purpose in the past. It 
 may be argued with much truth that commercial success 
 is not the highest form of ambition, but the people who 
 would do away with it altogether at present found their 
 propaganda on a gospel of envy, rather than on Christian 
 ethics, or the motive of co-operation for the common 
 good. And any socialistic experiments brought about as 
 
16 NATIONALIZATION OF INDUSTRIES 
 
 a result of preaching a gospel of envy against those who 
 have benefited themselves and the rest of the community 
 by thrift and business ability would simply result in 
 engendering slackness and quickly bring ruin and bank- 
 ruptcy to everyone. 
 
 It is hardly realized how the position of Great Britain 
 as the greatest commercial nation of the world before 
 the war was due to the rise of a succession of poor men 
 who from small beginnings raised themselves to wealth 
 or affluence by their own energy and ability. The profits 
 they made were largely the reward of ability to which 
 I have alluded. To them was due chiefly the industrial 
 and commercial progress of the country. They made 
 fortunes for themselves, but each one was also the cause 
 of relative prosperity to hundreds or thousands of others. 
 They started for the most part with no advantages and 
 made good. The common subject of denunciation on 
 Labour platforms of a rich and idle class fattening on the 
 labour of the poor is largely a myth. A large number 
 of the " idle " shareholders are people who have invested 
 a few hundred pounds of hard-earned savings, accumulated 
 by them or inherited from relatives. Without the men 
 who have made commercial Great Britain during the last 
 century, we should have had a country with half the present 
 population living in a state of squalor and misery. Capital 
 has not made itself. It has been accumulated by thrift, 
 energy and ability, and the men who have made the 
 accumulation have, in the main, risen from the ranks, 
 where, in early life, they had no greater chances than 
 thousands of others who did not possess the same qualities 
 of skill and determination, and so fajjed to rise out of their 
 status of employees. 
 
 Let anyone look round the business men whom he 
 knows to-day and inquire how few of them had wealthy 
 grandfathers, how very few had wealthy great-grand- 
 fathers, to whom their present fortunes are due. In 
 Lancashire, in Yorkshire, in Glasgow, in Birmingham, 
 
PROFITS UNDER PRIVATE ENTERPRISE 17 
 
 even in the City of London, the result of such an inquiry 
 would surprise many who have not considered the question. 
 Incidentally this fact seems to prove the unfairness of 
 railing against private wealth as such, but that is not the 
 purpose of the present argument. The real point is that 
 saving is absolutely essential to provide the capital which 
 is necessary in order to find employment for an increasing 
 population in a progressive commercial State. If particular 
 industries are to be nationalized they will cease to do the 
 share of saving which the owners of those industries have 
 effected in the past. If all industries are nationalized it 
 seems hopeless to expect any saving at all. 
 
 Conclusion of Analysis. 
 
 Many of the considerations with which I have been 
 dealing in the last few paragraphs are matters of policy 
 rather than of equity, but the two are almost inextricably 
 mixed when such a vast change as the nationalization 
 of industry is in question. Certainly both enter into the 
 answers that must be given to the proposals for a different 
 division of profits under the four categories of : (1) interest 
 on capital, (2) reward of ability, (3) remuneration for risk, 
 and (4) exceptional circumstances. 
 
 (1) On grounds of equity as well as policy reasonable 
 interest ought to be paid for capital required in industry. 
 (2) Reward of ability there is nothing inequitable in 
 paying remuneration to anyone of exceptional ability. 
 In some form or other this must be done, whatever 
 the organization of industry is. Russian experience 
 proves this. (3) Remuneration for risk is certainly 
 equitable. The man who runs a risk and is unsuc- 
 cessful loses both capital and interest. No one except 
 a wealthy man with a hobby would conceivably run a 
 risk in business unless there were a chance of some 
 extra financial reward. As a matter of policy it seems 
 better that the individual, rather than the State, with 
 its millions of critics who would carp at unsuccessful 
 
 2 
 
18 NATIONALIZATION OF INDUSTRIES 
 
 experiments, should take risks, and, if he does, he should 
 have a chance of adequate financial reward. (4) Excep- 
 tional circumstances affecting either the commodity dealt in 
 or the general course of prices. In regard to this category, 
 there is no doubt that public opinion is prepared for a 
 change, and we all know that a great change took place 
 during the war, under which the greater part of the profits 
 made in industry over a certain pre-war standard were 
 taken by the State. Exceptionally high profits still 
 continue, and an excess profits duty at the rate of 60 per 
 cent, is proposed in the 1920 budget. It is most desirable 
 that these exceptional profits in an exceptional time should 
 be equitably dealt with. But it is to normal times, rather 
 than to these abnormal ones, that attention should be 
 directed. It would be very short-sighted to make drastic 
 changes in industrial legislation in present circumstances, 
 unless those changes are skilfully devised to apply to 
 times of bad trade as well as to a period of high prices 
 and unusually large demand. 
 
 The Chancellor of the Exchequer has from time to 
 time foreshadowed some scheme for dealing with excep- 
 tional profits in a manner not open to the objections 
 raised to the excess profits duty. If this scheme is 
 satisfactory and equitable, so much the better, but if 
 the present boom in trade is succeeded by stagnation 
 similar to that which has followed other great wars, the 
 point to aim at will be, not the curtailment of exceptionally 
 large profits, but how to carry on businesses in which profit 
 is exiguous or even non-existent. Whether times are good 
 or bad, a scheme is needed which will induce all those 
 interested in industrial production to do their best. The 
 natural inducement which presents itself is to combine 
 a plan for profit-sharing between Capital and Labour 
 with a share in the management on the part of Labour. 
 Hitherto Trade Unions have been opposed to profit- 
 sharing schemes. The difficulties are admitted to be 
 serious, but I still believe that, with good will on both 
 
PROFITS UNDER PRIVATE ENTERPRISE 19 
 
 sides, and particularly if a share in management can be 
 given to representatives of the workers, such schemes 
 could be worked out with advantage to employers and 
 employed alike. I shall deal with this suggestion more 
 fully at a later stage. 
 
 The final result of this analysis of the factors of which 
 profit is composed shows that, judged by present ethical 
 standards, there is nothing inequitable and a fortiori 
 nothing against public policy in Capital receiving a return 
 for interest, for reward of ability, and for exceptional 
 risk. In regard to profit arising from exceptional cir- 
 cumstances affecting either the commodity dealt in or 
 the general course of prices, there is nothing inequitable 
 in imposing a tax on exceptional profits due to such a 
 change in prices as has recently occurred, or to any other 
 adventitious circumstances which lie beyond the control 
 of the individual entrepreneur. In normal times a scheme 
 of profit-sharing accompanied by a representation of 
 Labour in the control of industry is a solution sound in 
 itself and eminently worth consideration. 
 
 If this analysis is correct it cannot be argued that 
 there is any moral ground for objecting altogether to 
 profits as such, and there appears to be no valid reason 
 for advocating a complete change in our whole industrial 
 system in order to eliminate profit from it. This being 
 so, the so-called moral claim for nationalization on the 
 ground that the present system of profit is anti-social 
 falls to the ground, and the question may be judged on 
 the ground of expediency. 
 
 Before dealing with the claim that economic advantages 
 would accrue under a system of nationalization of industry, 
 there are three preliminary considerations that must be 
 mentioned. 
 
 1. NATIONALIZATION UNSUITED TO EXPORT TRADE. 
 
 In the first place the advocates of nationalization have 
 never contended that production, or manufacture for 
 
20 NATIONALIZATION OF INDUSTRIES 
 
 export, in which competition arises with the rest of the 
 world, is a promising field for their efforts ; they prefer 
 monopolies in the home market, where no comparison 
 with private enterprise at home or abroad can be instituted 
 after the change is made. It is therefore plain that Great 
 Britain, whose prosperity depends to a greater extent 
 than is the case in any other great country in the world 
 on export trade in manufactured goods, is the least suitable 
 field for a huge experiment in nationalization. Even as 
 regards the coal trade, the export of coal from this country 
 is vital in connection with providing outward-bound 
 cargoes for our merchant shipping. If we find ourselves 
 unable to export coal on something like the pre-war 
 scale, a fatal blow will be struck at our shipping ascendancy, 
 with results of a most serious character to the safety of this 
 island in case we are involved in another world -wide war. 
 
 2. DEMORALIZING EFFECT ON POLITICAL LIFE. 
 
 In the second place it is impossible to contemplate 
 with equanimity the profound change involved by any 
 far-reaching schemes of nationalization of industry in our 
 political life. Both parochialization of political controversy 
 and demoralization of political manners are certain in that 
 event. The questions before the electorate at a general 
 election would tend to be confined to questions of wages 
 and conditions of labour in the industries owned and 
 managed by the State. Electors, in the heat of contro- 
 versy on purely internal matters in trades for whose control 
 the Government had become responsible matters hitherto 
 outside the purview of the State would forget the enor- 
 mous responsibilities of this country as the centre of a 
 great Empire, both in regard to foreign affairs and our 
 vast colonial interests. The importance of these questions 
 is greatly enhanced by the world-wide chaos, welter and 
 confusion which the Great War has left behind. Years 
 of patient statesmanship of the highest order are required 
 to resettle the world on a permanent basis of peace, 
 
PROFITS UNDER PRIVATE ENTERPRISE 21 
 
 contentment and prosperity. In that resettlement Great 
 Britain ought to take a foremost and beneficent part, 
 and it is impossible that she should, if her whole attention 
 is centred on internal industrial questions of wages and 
 conditions of labour at home. Even more important 
 than this narrowing of political perspective is the demoral- 
 ization of our political life which the nationalization of 
 industry on a wide scale would inevitably induce. It 
 has been difficult enough in the past for a conscientious 
 and honourable candidate to withstand the pressure often 
 put upon him by his political agent and principal advisers 
 to make promises on some matter of local interest or 
 prejudice which appears to them to bulk large in the 
 eyes of the electorate at the moment. If nationalization 
 of industry were introduced on a large scale, all elections 
 in which the constituencies contained many voters em- 
 ployed by the State would resemble those of which certain 
 dockyard constituencies have already given us an example. 
 The general interests of the nation and of the Empire, 
 as a whole, would be subordinated to questions of local 
 wages, employment and conditions of labour. The local 
 demagogue who promised to make the interests of his 
 constituents his chief concern, and offered to act as their 
 delegate in pressing their claims, would be a frequent 
 phenomenon. In such circumstances the whole tone of 
 political life would be lowered. Men of wider outlook, with 
 honourable determination not to subordinate the real 
 interests of the nation to local prejudices, would not be 
 chosen as candidates by the local political officials. The 
 more scrupulous would soon cease to desire to stand as 
 candidates where log-rolling would become a fine art and 
 dignity and self-respect would be difficult to maintain. 
 It is difficult to understand what Lord Haldane means 
 in saying that Labour has " captured the heights/' when 
 the fact is that the inevitable effect of Labour's chief 
 contribution to practical politics is a proposal to reorganize 
 industry on a plan that entails a narrowing effect on 
 
22 NATIONALIZATION OF INDUSTRIES 
 
 political thought and a demoralizing effect on political 
 controversy. 
 
 3. INSUPERABLE FINANCIAL DIFFICULTIES AT PRESENT. 
 
 In the third place, the present is the most unsuitable 
 time that could be chosen to add to the National Debt 
 by paying off present proprietors of industries now carried 
 on by private enterprise with money borrowed on the 
 security of the State. The amount required to expropriate 
 present owners of land and buildings, railways and coal- 
 mines, even at pre-war values, is approximately 
 7,000,000,000. The light-hearted manner in which ad- 
 vocates of nationalization suggest that such a transaction 
 is a mere exchange of bits of paper shows how little they 
 understand the issues involved. Even if it were generally 
 agreed that nationalization of industry is sound in principle, 
 which is certainly not the case at present, the present 
 moment is the worst that could be chosen for adding 
 to our national liabilities in regard to questions which 
 are not of urgent and immediate necessity. We are 
 staggering under the weight of the enormous debt accumu- 
 lated in the last six years, and are not yet convinced 
 either that our exports are paying for our imports or that 
 Government revenue is meeting Government expenditure. 
 The urgent and immediate necessity of the times is (1) to 
 regulate our national finances, to bring Government 
 spending within Government income, and allocate a sur- 
 plus of revenue as a sinking fund to reduce the National 
 Debt ; (2) to see that our exports, visible and invisible, 
 are paying for our imports ; and (3) to make sure of a 
 reasonable margin of national saving to provide for 
 employment for the normal increase of population. Until 
 these things are secured, it would be folly to add recklessly 
 to our capital liabilities for schemes whose financial effect 
 is at least doubtful. Additions to the deadweight of 
 national debt at. the present time would jeopardize the 
 chances of. ultimate recovery. 
 
PROFITS UNDER PRIVATE ENTERPRISE 23 
 
 If I believed in nationalization of industry and desired 
 to see a large experiment carried out under favourable 
 conditions, present financial circumstances are such that 
 I should urge postponement until our position was 
 regularized. Labour does not apparently understand the 
 insecure basis of current prices and profits. To a country 
 like ours, dependent to so great an extent on export trade, 
 the prospects in a few years' time are, to say the least, 
 doubtful. Europe east of the Rhine is plunging deeper 
 into distress. The hoped-for indemnities from our con- 
 quered foes are postponed, and the immediate need seems 
 to be to lend them more money in order to help to produce 
 the economic equilibrium that is necessary if any in- 
 demnities are ever to be paid. " France has so far made 
 no attempt to arrest by taxation the inflation of her 
 currency and her growing indebtedness. Italy is in a 
 very similar case. In Austria famine is almost universal. 
 . . . The new States created by the Paris Conference 
 have little political and no economic organization, and 
 can only be regarded as clinging very precariously to 
 independent life. And all this dislocation and turmoil 
 is setting a deeper and deeper mark, not only on the 
 generation that fought the war, but on the men and 
 w r omen of the future that had no part in it. Children 
 are dying in terrible numbers, and those that survive 
 will have famine and disorders in their systems for the 
 whole term of their lives " (Round Table, March, 1920). 
 
 We are living in a fools' paradise if we have regard 
 only to the present demand for goods and shut our eyes 
 to the inevitable results of such a condition of affairs 
 as is described in the above quotation. The poverty and 
 economic chaos of Europe must react on us by depriving 
 us of those who were customers for our exports in the 
 past, but have now no means of paying for them. Labour 
 in this country looks too much at present prices and 
 profits, while financial experts, looking farther afield, 
 dread what the future may bring forth. It is with no 
 
24 NATIONALIZATION OF INDUSTRIES 
 
 lack of sympathy for the claims of the workers that I 
 would urge Labour, even for its own sake, not to attempt 
 to add to our financial liabilities by schemes of national- 
 ization which must increase our difficulties at a time 
 when they already give cause for serious anxiety. 
 
 No Reliable Statistics Available. 
 
 Turning from these preliminary considerations to an 
 examination of the economic advantages that are claimed 
 for nationalization of industry, one would have expected 
 that, after years of trial, some statistical proof of an 
 authoritative kind as to the relative financial success 
 or failure of State industries, as compared with those 
 under private enterprise, would have been available. 
 Unfortunately, so far as I can discover, no reliable compara- 
 tive figures are in existence. Statements on both sides 
 abound. Opponents of nationalization point to the loss 
 on telegrams, and to the fact that Government manage- 
 ment of telephones has not been a financial success. 
 In regard to schemes which, although gigantic in them- 
 selves, still fall far short of nationalization of a great 
 industry, such as the transfers to public bodies of the 
 water supply of London and of the London tramways, 
 they point out that the hopes, either of cheaper 
 management or profit, entertained at the time the 
 transfers were made have not been justified. Some 
 investigators have indeed produced figures on one side 
 of the controversy or the other, but the facts are so 
 complicated, and the fairness of the comparisons made 
 so doubtful, that it is impossible to found any reliable 
 conclusion upon them. I am inclined to agree with the 
 following extract from the Fabian Research Department's 
 essay on " State and Municipal Enterprise," published in 
 the New Statesman of May 8, 1915 : 
 
 No set of contrasted examples yet adduced, from tramways 
 to gasworks, from dockyards to railways, whether in different 
 
NO RELIABLE STATISTICS AVAILABLE 25 
 
 countries, in different cities of the same country, or at different 
 periods in the same city, are so exactly comparable as to permit 
 their statistical results, even when these can be authoritatively 
 obtained, to carry conviction either way to the unprejudiced 
 observer. 
 
 It is true the Fabian Research Department claim, as an 
 exception to this general statement, the result of an 
 examination of the costs and charges in regard to electricity 
 supply in this country. They maintain that the figures 
 tell in favour of municipal enterprise. Even if the figures 
 are correct, it is impossible to found any argument upon 
 them, (1) because, outside London, the most favourable 
 areas are all in the hands of municipalities, and in London, 
 where they are in the hands of companies, the expenses 
 of production are much higher than elsewhere ; and 
 (2) because municipal enterprise is not a safe guide to 
 nationalization of industry, as I shall presently show. 
 
 There is a certain amount of evidence of a general 
 character from some of the States of Australia. Sir 
 Charles Wade, late Agent- General for New South Wales 
 in this country, in an article in the Fortnightly Review 
 for September, 1919, stated that nationalization tended 
 towards the destruction of the efficiency and manhood 
 of the individual worker. He showed also that concessions 
 have been frequently promised to railway and other State 
 employees at election times. More significant still was 
 his statement that experience had shown that the only 
 method of obtaining a reasonable amount of work, and 
 reasonable economic results, from State -employed working 
 men, was to remove them from the direct control of a 
 Minister responsible to Parliament and place them under 
 independent Boards composed of men free from political 
 pressure, and appointed for a considerable term of years 
 at adequate salaries. One other relevant consideration 
 is also mentioned by Sir Charles Wade. It is, that in 
 the numerous experiments in the partial nationalization 
 of industry, other than railways, which have been made 
 
26 NATIONALIZATION OF INDUSTRIES 
 
 in Australia, in no case where competition existed with 
 similar industries privately owned and managed has there 
 been any tendency for the State industry to drive out 
 the private entrepreneur. The evidence, such as it is, 
 in reference to the State management of coal-mines and 
 railways will be dealt with in its proper place. 
 
 In the absence of any reliable statistical evidence of 
 the comparative financial efficiency of State-managed 
 industry as compared with industry under private enter- 
 prise, it seems desirable to examine how far the economic 
 advantages claimed for nationalization are sound in 
 theory, then to proceed to an inquiry as to how a national- 
 ized industry would be worked, and finally to investigate 
 the particular cases of coal-mines, railways and land. 
 
 Definition of Nationalization. 
 
 In order to make clear the subject of examination, it 
 is necessary in the first place to define the kind of nation- 
 alization which I have in mind. Nationalization is capable 
 of many connotations, from varying forms of control of 
 prices or profits to complete ownership, control and 
 management by the State. It is the latter form that I 
 shall deal with. Its essence, as I understand it, is that 
 there shall be a Minister responsible to Parliament at the 
 head of the nationalized industry, advised by State officials 
 who belong to the permanent Civil Service, and that 
 the whole industry shall be owned by the State and all 
 the staff and workers be State employees. The organiza- 
 tion may differ in detail from that of the Post Office, 
 or from that recommended for the coal-mining industry 
 in the Sankey Report, but the cardinal points of similarity 
 to them will be complete ownership, control and manage- 
 ment by the State, and a Minister at the head responsible 
 to Parliament. In the sense of that definition of national- 
 ization I proceed to examine the economic advantages 
 claimed by the advocates of the change. 
 
ECONOMIC ADVANTAGES CLAIMED 27 
 
 Economic Advantages claimed for the 
 Nationalization of Industry. 
 
 The economic advantages claimed for the nationaliza- 
 tion of industry rest theoretically on the claim that savings 
 will be made by the amalgamation of businesses which 
 have hitherto competed with one another, and practically 
 on the increasing tendency to form combinations and 
 trusts. The advantages of combination into organizations 
 of a sufficiently large size to achieve the greatest economy 
 in manufacture are manifest. Management expenses are, 
 or may be, reduced. Greater business skill in the heads 
 of the concern can be procured by the ability to offer 
 large salaries to specially gifted men. Buying on a large 
 scale can be effected with financial advantage, and very 
 often a higher price may be procured for the sale of the 
 manufactured commodity when the combination is in a 
 position to deliver large quantities of a guaranteed quality, 
 and to give delivery at the time desired by the buyer. 
 
 On the other hand, as the Federation of British 
 Industries have pointed out in a recent report on the 
 Control of Industry, " it must be remembered that 
 the administration of large centralized concerns is still 
 in an experimental stage, and only experience can discover 
 how best to eliminate the inherent difficulties." Trusts 
 and combinations have been generally built up by 
 individual business geniuses, and it is not at all certain 
 that their successors will manage these immense concerns 
 with as much ability as their founders. The tendency 
 to amalgamation in business is a potent fact, and shows 
 no present sign of slackening ; but there is probably a 
 certain economic unit of varying size representing maxi- 
 mum efficiency in different businesses, and by going beyond 
 that unit of size no economic advantage is likely to be 
 secured. This is precisely the point that remains to be 
 discovered. Just as there is a limit to the size of an army 
 that a particular general can use to the greatest advantage, 
 
28 NATIONALIZATION OF INDUSTRIES 
 
 so there is a limit to the size of business organization 
 that can be controlled economically and successfully by 
 one man or group of men. In the case of none of the 
 greatest military strategists whom the world has known, 
 Alexander, Julius Caesar, Oliver Cromwell, Frederick the 
 Great and Napoleon, did their mantle fall on any successor 
 of parts comparable with their own. In the same way 
 there seems no certainty that the mantle of some of the 
 great business strategists of recent years will fall on men 
 of equal ability, particularly having regard to the ever- 
 shifting political kaleidoscope, which may at any time 
 produce profound differences in the conditions in which 
 their combinations were built up. And if that be the 
 case, it may be found that some existing combina- 
 tions are too large for permanence, and that a limit 
 will eventually be set to the movements towards 
 amalgamation. 
 
 The recent history of the cotton trade is worthy of 
 examination in this connection. In that indust^, as in 
 others, there has been a tendency to amalgamation in 
 recent years. The Fine Spinners, the Bleachers' Combine 
 and the Calico Printers' Association are examples. Even 
 in finer counts there are, however, many large firms which 
 stand outside the Fine Spinners. In the spinning of medium 
 and coarser counts there has been little tendency to 
 combine until quite recently. The same set of promoters 
 have been responsible for many promotions of new spinning 
 mills, but each mill has been formed into a separate 
 company working as a separate unit. Apparently it was 
 considered that the ordinary size of a modern spinning 
 mill with 100,000 or 120,000 spindles was an economic 
 unit which could not be bettered. Certainly, if pre-war 
 expenses of management had continued, it is difficult to 
 see how costs of production could have been reduced by 
 amalgamations. The recent transfers of spinning mills 
 at greatly enhanced prices represent a new phenomenon, 
 and I should be sorry to predict what the ultimate result 
 
ECONOMIC ADVANTAGES CLAIMED 29 
 
 of this wave of speculation is likely to be. Another feature 
 of interest in the cotton business is that there are fewer 
 combined spinning and weaving concerns to-day than 
 existed forty or fifty years ago. Instead of a tendency 
 to amalgamate the spinning and weaving of cotton by 
 the same firm, the tendency has been all the other way. 
 These facts appear to indicate that there are limits to 
 combination in one of the most highly developed trades 
 of the country, and probably the same thing may be said 
 of other textile and non-textile industries in the country. 
 Whatever may be the eventual course of events in 
 this respect in privately owned undertakings, and however 
 strongly may run for the present the current towards 
 combination, a very different situation arises if the tendency 
 to amalgamation in privately owned businesses is to be 
 used as an argument for State ownership and management 
 of industry. The success of certain combines and trusts 
 up to the present time has been achieved under private 
 management by gradual steps which have been tested 
 by results as they proceeded. These steps were worked 
 out by practical men who were masters of their craft and 
 ready to accept responsibility for them, who stood to 
 gain both financially and socially by their success, and 
 who would have lost most of their money and all their 
 reputation had they failed. There was no question in 
 most cases of absorbing the whole of an industry, some 
 concerns profitable and progressive, others uneconomic and 
 decadent. Each amalgamation was in itself a concrete 
 proposition of a manageable size in which the promoters 
 believed they saw a financial gain, and for which they were 
 ready to run risks. The scale of the combination was 
 limited to the proportions desired by the promoters, and 
 the amalgamated organization was in their opinion of a 
 size which they could satisfactorily control. In many 
 recent combinations the actual steps taken have been 
 an interchange of shares and pooling of interests, control 
 and management being left untouched. In others, where 
 
30 NATIONALIZATION OF INDUSTRIES 
 
 the whole or the majority of shares have been bought, 
 the old directorate and staff have been left almost 
 unaltered, and the business goes on precisely as before. 
 
 The nationalization of a whole industry by law and 
 the expropriation of the present owners on terms laid 
 down by Parliament are an entirely different matter. 
 The change would be made under political pressure 
 exercised by people not masters of business-craft, and 
 after a bitter political struggle. The question whether 
 the industry was of a size lending itself to economic 
 working under one control would go by the board. The 
 most capable managers of the largest firms in the industry 
 would probably not take service under the State, as they 
 are precisely the people most opposed to Government 
 management of business. In contrast with the privately 
 made amalgamations already described, in which the 
 promoters staked their financial future on the success 
 of the enterprise, there would be a new set of men under 
 the State who had no financial stake in the success of the 
 newly socialized industry. They would be under a Minister 
 whose major interest would be political and his capacity 
 for management unknown, and the Minister would be 
 advised by Civil Servants. 
 
 Even if our financial position permitted of the addition 
 to the National Debt involved, an experiment of this 
 kind would be a leap in the dark and might have most 
 deplorable results. It is significant that the people of this 
 country who argue most strongly that State ownership 
 and management would be more economical than private 
 enterprise are the least anxious for experiments to be 
 tried under competitive conditions. It is the private 
 entrepreneur who would like to see such experiments, 
 because he thinks they would fail. It is the Socialist 
 who shrinks from them. 
 
 It is also significant that those who promise benefits 
 from nationalization have had no practical experience in 
 the management of great business undertakings which 
 
ECONOMIC ADVANTAGES CLAIMED 31 
 
 would entitle their opinion to carry weight on any pros- 
 pectus, and also that they have been singularly wrong 
 in reference to the actual predictions they have made in 
 the past. The advantages which were promised, but have 
 not accrued, from the transfers of the water supply and 
 London tramways to public managements are cases in 
 point. The fact is that any theorist can with a sheet 
 of paper and pencil work out imaginary profits on the 
 basis of borrowing money at low rates of interest on the 
 security of the State, and of economies to be made by 
 the elimination of competition ; but the practical man 
 who has had experience in managing industrial enter- 
 prises and understands thf motives that affect all classes 
 engaged in production, fr >m the chairman of directors 
 to the labourer or office-boy, knows that human nature 
 is not ruled by pencil calculations, and that there are 
 more things in heaven and earth than are dreamt of in 
 the philosophy of Fabian calculators. It is strange that 
 people should attach any importance to prophecies on 
 economies in business management made by men like 
 Mr. Sidney Webb, who boasts of having no personal 
 experience of controlling any considerable industrial 
 enterprise, and should treat as of no importance the 
 practically unanimous opinion of present leaders of in- 
 dustry, that nationalization of the kind I am dealing 
 with would result in waste, red-tape, slackness and 
 inefficiency, so serious as to- far more than outweigh 
 any of the theoretic savings promised. 
 
 Allusion has already been made to the lack of statistical 
 data on which any reliable conclusion can be based as 
 to the relative merits of nationalization and private 
 enterprise. Even in regard to municipalization there is 
 an absence of figures fairly comparable with one another 
 which prove the superiority or inferiority of municipal 
 enterprise. 
 
 If it were proved that municipal enterprise had been 
 relatively a success, and that is far from being the 
 
32 NATIONALIZATION OF INDUSTRIES 
 
 case, it must be remembered that municipalization of 
 local monopolies and nationalization of industries in which 
 competition with other nations may be involved -are very 
 different matters. Up to the present time, in this country, 
 municipalization of local monopolies has been carried on 
 under the control of men imbued with the spirit of private 
 enterprise and bringing practical knowledge gained in 
 their own private businesses to bear on municipal problems. 
 In all provincial towns, even in the largest, the business 
 enterprises conducted by the municipalities are of a 
 relatively reasonable and manageable size, and this fact 
 alone differentiates municipal enterprise from nationalized 
 industrjr so completely as to make conclusions drawn 
 from the former inapplicable to the latter. Municipal 
 enterprises are largely confined to services which must 
 be monopolies in the district served, they require the 
 consent of the local council, and in the case of a Bill in 
 Parliament, a species of referendum of the electors is 
 necessary. They are sanctioned only after either a 
 local inquiry conducted by a Government Department or, 
 in larger matters, after an elaborate investigation by 
 Private Bill Committees of both Houses of Parliament. 
 The two checks and safeguards (1) that the undertakings 
 are generally of a reasonable size and not beyond the 
 City Fathers' capacity for effective control, and (2) that 
 they have to run the gauntlet of independent investigation 
 in which the financial proposals are carefully inquired 
 into differentiate municipal enterprises completely from 
 the nationalization of a vast industry. 
 
 The past history of Liberalism shows a well-founded 
 distrust of State action in regard to matters which have 
 been managed with tolerable efficiency by individual 
 enterprise. But Liberalism has also displayed a readiness 
 to adapt itself to new methods of securing freedom 
 when experience has shown it to be necessary. The 
 principle of the minimum wage has been accepted by 
 Liberal leaders, because it has been recognized that State 
 
HOW NATIONALIZATION WOULD WORK 33 
 
 interference in wages is a less evil than the existence of 
 sweated labour, which deprives the worker of any reasonable 
 chance of obtaining the fuller life to which he is entitled. 
 It is an entirely different matter for the State to say to 
 the private employer, " You must, for the sake of the 
 well-being of the State as a whole, pay a certain minimum 
 wage to your employees," from saying, " You can no 
 longer be allowed to own, manage or control the industries 
 you have brought into existence and nursed through their 
 earlier stages. The State will now take them over from 
 you." The former plan is consistent with greater real 
 freedom to live a full life on the part of the mass of the 
 community. The latter, if my argument is sound, would 
 lead to the destruction of freedom to every individual 
 as regards choice and conditions of work. It is essential 
 for Liberals to bear this distinction in mind in the exam- 
 ination to which I now turn of how a nationalized industry 
 would work. The analysis which follows is chiefly devoted 
 to the question of efficiency, but I beg readers who have 
 the patience to follow the course of the argument to note 
 the increase of bureaucracy and diminution of freedom 
 which are inevitable in the nationalization of industry. 
 
 How the Nationalization of Industry would Work. 
 
 The factors of personnel in a nationalized industry 
 such as I am imagining are (1) the Minister ; (2) the 
 permanent Civil Servants who advise the Minister ; (3) the 
 rest of the staff ; and (4) the manual workers. 
 
 1. The Minister. 
 
 The head of a State-owned and managed industry 
 would be a Minister appointed for political services with 
 a highly uncertain tenure of office. During the war an 
 attempt was made to appoint business men to business 
 posts. The success of the experiment was not such as 
 to create a desire for its continuance. At tlje 
 
 3 
 
34 NATIONALIZATION OF INDUSTRIES 
 
 of the country we have already returned to Cabinet 
 government. Although the present Government repre- 
 sents a Coalition, we shall soon return to Party govern- 
 ment. It is practically true to-day, and it must be the 
 case under Party government, that Ministers are chosen 
 on general political grounds and not for technical qualifi- 
 cations. The future of a Minister under Party govern- 
 ment depends not so much on his success in his Department 
 as on the success of his party as a whole. The considera- 
 tions that operate with him are, therefore, firstly political, 
 and only secondarily departmental. To state this is to 
 cast no reflection on him. It is of the essence of the case. 
 The question arises, therefore, whether a Minister politically 
 appointed, with an uncertain tenure of office, averaging 
 in any particular post not more than two or three years, 
 and in most cases having little or no knowledge of the 
 work of the Department he is called on to control, can 
 work an industrial organization of perhaps unwieldy size 
 successfully, in comparison with tried business men who 
 have grown up in organizations of more manageable 
 dimensions, and who have been appointed to their 
 responsible positions solely on account of special fitness 
 by Boards of Directors having large financial interests 
 in the concern. So far as salary is concerned, the 5,000 
 a year paid to a superior Minister, and terminating with 
 his tenure of office, is no inducement to the best type 
 of business man, who is often paid a far higher salary 
 for a long term of years because he is worth more to 
 the firm that employs him. The traditional 5,000 is 
 not a business payment calculated on the value of the 
 services rendered, but an honorarium paid alike to rich 
 and poor without any element of competition in it. So 
 far as experience in business goes, the Minister, appointed 
 as he would be in the political conditions described, 
 would be a child compared to the managing directors of 
 most of our great industrial undertakings. What reason 
 is there to expect superior efficiency from such a Minister ? 
 
HOW NATIONALIZATION WOULD WORK 35 
 
 What reason also to suppose that his opinion would out- 
 weigh that of the permanent bureaucrats who would 
 advise him ? 
 
 The case is made far stronger if proper regard is paid 
 to the considerations which would primarily affect a 
 Minister controlling an industry, when compared with 
 those that govern the heads of private industrial enter- 
 prises at present. The head of a private industrial 
 enterprise which is not a complete monopoly (and there 
 are few complete monopolies in which no competition 
 present or in the future is to be feared) is judged by 
 results. He has achieved his position by a process of 
 competitive selection ; he knows he has to justify it. The 
 quality of goods he supplies, the volume of business done, 
 the good or bad feeling among the workpeople, the success 
 or failure of the new experiments he makes, his capacity 
 for organization, are matters known to the Board of 
 Directors who appointed him, and the dividends earned 
 are known to the whole world and commented on by 
 the public Press. His whole future depends on results 
 which can be easily tested. In the case of a Minister 
 at the head of a Department managing an industry there 
 can be no such easily measurable tests of success or failure. 
 He is head of a monopoly. If the goods supplied are 
 indifferent in quality and customers complain, he tells 
 them to take them or leave them. It does not matter 
 to him if the volume of business contracts. The public 
 purse is behind him, and he is not affected in his own 
 pocket. If complaints of his management are made, it 
 is only the Prime Minister who can bring him to book, 
 and the resources of his Department are at his disposal 
 to help him to put forward the best explanation of apparent 
 deficiencies and to conceal real mistakes. It is much 
 more difficult for the Prime Minister to find out the truth 
 about the laches of a Minister than for a Board of Directors, 
 with comparative figures and facts before them, to judge 
 of the suitability of a managing director, or manager, in 
 
36 NATIONALIZATION OF INDUSTRIES 
 
 a private enterprise. There is also this further difference. 
 In a Government Department managing an industry the 
 failure of the Minister in charge has a political aspect. 
 It may reflect on the Government and Prime Minister. 
 If the fault or deficiency is glaring, it is possible for the 
 Prime Minister to demand resignation. But, in nine 
 cases out of ten, the faults would not be glaring. They 
 would consist in slackness, inattention, bad judgment, 
 or lack of tact in trivial labour troubles. Only when the 
 cumulative effect of these had become apparent would 
 action be taken to replace the Minister, probably by 
 transferring him to a post where he would do less mischief. 
 The nominal control of Parliament, busy with many other 
 questions, would for practical purposes be little better 
 than a farce. 
 
 In the case of a Labour Government, the Minister 
 would, if Australia is to be taken as a precedent, be the 
 nominee of the Caucus of the Labour Party, and be account- 
 able to them for his actions. How Labour disputes would 
 be dealt with in such a case must bs left to the imagination. 
 
 It may be suggested that business monopolies owned 
 by the State should, on the analogy of the Road Board 
 and the Port of London Authority, be managed by an 
 Independent Board appointed, but not controlled, by the 
 Government. This is what has happened in regard to 
 some of the State railways in Australia, as the result of 
 bitter experiences of the inefficiency of a system of national- 
 ization with a Minister directly amenable to political 
 influence at the head. Such a scheme is directly opposed 
 to that put forward by the advocates of nationalization 
 in this country, and is not even suggested in the plan 
 outlined by Mr. Justice Sankey for the coal-mines. For 
 the present, therefore, it may be dismissed. 
 
 It is clear that, as regards relative efficiency, the 
 Minister in charge of a nationalized industry must compare 
 very unfavourably with present industrial leaders under 
 a regime of private enterprise, 
 
HOW NATIONALIZATION WOULD WORK 37 
 
 2. The Civil Servants who Advise the Minister. 
 
 The principal advisers of the Minister, and the de facto 
 controllers of a nationalized industry, would be, pre- 
 sumably, Civil Servants with headquarters in London. 
 I have had a good many years' experience of Government 
 offices, and have never rated the zeal and efficiency of 
 the higher class of Civil Servants one whit lower than 
 the zeal and efficiency of the best business men. The 
 ability of the higher Civil Servants is certainly as great 
 as that of the heads of any other profession or trade in 
 the country. Yet it is generally acknowledged, and by 
 no one has it been more emphatically stated than by 
 Lord Ask with and other retired Civil Servants, that the 
 present higher Civil Servant is quite unsuited to control 
 business or industrial enterprises. If, then, any great 
 industries are to be nationalized, who are to be the per- 
 manent officials to control them and advise the Minister ? 
 They must be the old style of Civil Servants or a new 
 class specially qualified for the work, presumably the 
 latter. 
 
 To make a success of the nationalization of industry, 
 the aim should be to devise a scheme under which natural 
 leaders would rise to positions of control, as they have 
 done by a process of competitive selection under the 
 regime of private enterprise. The qualities that make 
 the great industrial leader and business man are something 
 of a mystery. They are not easy to define, and the nearer 
 one comes to a definition, the more improbable does it 
 seem that these qualities could be discovered under any 
 other system than the process of competitive natural 
 selection, which is an essential part of the system of 
 private enterprise. My own conviction, after a good 
 deal of study and reflection, is that the particular qualities 
 needed are inborn, and that they cannot be produced in 
 their higher forms by any system of State-made training. 
 Lord Haldane's solution of the question is to educate 
 a special body of men for the work, and Lord Haldane 
 
38 NATIONALIZATION OF INDUSTRIES 
 
 is an advocate of clear thinking. Has he ever clearly 
 thought out the real problems involved in reference to 
 this question ? His contention is, I presume, that by 
 education it would be possible to produce a body of men 
 who could manage nationalized industries approximately 
 as efficiently as private enterprise has managed them in 
 the past. Leaving on one side the important considera- 
 tion that any such system of education does not exist 
 to-day, that it would take years to organize, and that 
 yet more years would be occupied in turning out the 
 finished graduate, the fundamental problem remains 
 unaffected ; and the fundamental problem is that business 
 aptitude of the highest quality is inborn and not produced 
 by education. If anyone will look round the world to-day, 
 select the greatest business men and controllers of industry, 
 and inquire how many of them owe their success to edu- 
 cation in the academic meaning of the word, he will un- 
 doubtedly come to the conclusion, first, that few of 
 them were educated up to the standard of an Honours 
 Degree at a University, and, second, that those few 
 owe their success more to innate qualities than to superior 
 education. So far as education has improved their natural 
 aptitude, it has been principally the rough practical 
 education of the world of business, not that of a University. 
 It has been the capacity to predict the course of markets, 
 the power to see farther ahead than others, the vision 
 which has enabled them to organize and work out com- 
 binations, the will-power which has triumphed over 
 obstacles, above all, the courage to take great risks on 
 their own initiative, which has made them what they are. 
 Education is good, of course. The more technical skill 
 a man has in connection with his own business, the better 
 he is. More important is the effect of education in 
 broadening his mind, and in teaching him precision of 
 thought and concentration on the subject in hand. But 
 the essential point in business, as it has been conducted 
 under a system of private enterprise, is the possession 
 
HOW NATIONALIZATION WOULD WORK 39 
 
 of the qualities described above, and these cannot be 
 acquired by training. 
 
 It is important to remember also that every man has 
 the defect of his qualities. First : great business men are 
 often late in developing the qualities that make them great 
 as business men. They only find out for themselves 
 what they are by beginning to take risks on their own 
 initiative. They learn by actual experiment to rely 
 on their own judgment, and to take great responsibilities 
 in regard to the affairs under their control. In any 
 system of education of Civil Servants for the control of 
 nationalized industries, it is impossible to predict any 
 reasonable chance of selecting for education those who 
 have special natural aptitude as men of business and 
 industrial leaders. The particular qualities can, apparently, 
 only be developed in a competitive milieu. Second : the 
 very capacity which makes a great business man rely 
 on his own judgment makes him also very impatient 
 of interference on the part of either Government or 
 politicians. The whole story of the Slough Committee 
 is an illustration of the impatience of a business man 
 with what appeared to him to be the slowness and endless 
 impediments of Government control. There is also in 
 the evidence given to the Committee by Sir C. Harris, 
 Assistant Financial Secretary of the War Office, an 
 incisive statement from an official's point of view on 
 the change in status of an independent business man who 
 becomes part of a Government machine : 
 
 [A great business man] "comes into a Government Department, 
 and he finds that when he has given a decision, his plan is referred 
 to another Department, where some quite subordinate person begins 
 to take it up and criticize it afresh from another point of view. 
 He finds that, at a later stage, he may be called upon to justify his 
 decision and his conclusions before this body and that body. . . . 
 After a little of this he gets bored, and is liable to make use of pictur- 
 esque expressions about red-tape and about being torpedoed at 
 every turn, and that sort of thing. The real fact is that he has 
 failed to adjust his mental focus to the change in his own position. 
 
40 NATIONALIZATION OF INDUSTRIES 
 
 He is no longer a general manager, but he is a branch manager, 
 or something even less than that. . . The suggestion that I 
 want to make to the Committee is that what we have here is the 
 story of the fly-wheel that became a cog-wheel, and that, without 
 attributing a double dose of original sin to either the official or the 
 business man, it is perfectly natural that the business man shall 
 have those views, and it is nevertheless perfectly true that they are 
 ill-founded." 
 
 Anyone who will read, mark and inwardly digest the 
 bearing of recent disclosures on the conduct of business 
 by Government during the war must come to the con- 
 clusion that those who have, in the actual battle of life 
 under a system of competitive private enterprise, forged 
 to the front as great business men would never submit 
 to the necessary limitations and interference of Govern- 
 ment management of their businesses, and would at all 
 risks, so long as that was possible, find for themselves 
 other fields of work outside the borders of State control. 
 There is a great deal of loose thinking about the question 
 of unnecessary red-tape in Government offices. It is true 
 that statements are often made public which appear to 
 convict Government Departments of stupidity amounting 
 almost to imbecility. It is also true that if such state- 
 ments were made as regards private businesses, firms 
 convicted of them would so suffer in reputation that, 
 unless they drastically amended their methods, they 
 would lose their trade and become bankrupt. The Govern- 
 ment Department once formed is, on the other hand, 
 regarded as a permanent necessity and cannot go into 
 liquidation and cease to exist. So much must be acknow- 
 ledged ; but it is quite wrong to suppose that Government 
 Departments can be conducted in the same way as private 
 businesses, and that needless red-tape is the chief cause 
 of mistakes and stupidities. There is an essential difference 
 between Government and private work, and that essential 
 difference renders much of what is called red-tape necessary. 
 In the first place, Government Departments are so large 
 that all ordinary correspondence must go through a 
 
HOW NATIONALIZATION WOULD WORK 41 
 
 general registry. A good registry is the foundation of 
 accuracy in all such departments, and the only means 
 of preventing the loss of necessary records. Some delay 
 is caused by the necessity to register all except a very 
 few secret documents ; but much more delay, and indeed 
 inextricable confusion, would be caused if there were no 
 system organized for keeping all the correspondence 
 ready for use and reference. In the second place, docu- 
 mentary evidence must be kept of the reasons for all 
 official action. At any moment an inquisitive Member 
 of Parliament may ask questions on any conceivable 
 subject, and it is necessary that records should be available 
 for a full and correct answer. It is quite impossible to 
 trust to memory, as anyone who has knowledge of the 
 complicated nature of official work must know. The 
 Minister is to sit in and be responsible to Parliament. 
 It is obvious he could not do much of the actual business 
 himself. It is too vast for one man to deal with. But 
 he must be able to answer questions, and to explain 
 every detail to Members of Parliament and a watchful 
 public. Therefore he must have at his command docu- 
 mentary evidence of every transaction in buying or 
 selling, in working, in wages, in organization. Apart 
 from Parliamentary questions, which would often be on 
 very trivial matters, only matters of principle would 
 come directly before him. All the other thousands of 
 questions would be settled by the staff. It would be a 
 matter of organization to decide which official should 
 finally settle any particular question. Papers on questions 
 requiring attention would be collected and arranged by 
 a clerk low down in the official hierarchy, and, unless the 
 matter were trivial, the clerk would have to submit it to 
 his immediate superior, who, in turn, might have to send 
 it on to some one above him. The usual plan in Govern- 
 ment offices is for each official to minute his opinion to 
 his superior. Such a course often saves time in the long 
 run. If any other course were adopted, he would have 
 
42 NATIONALIZATION OF INDUSTRIES 
 
 to interview the superior, who might not be in his office 
 at the time, or, being in his office, find himself too busy 
 to attend to it at the moment. More time would be wasted 
 in many cases in finding the superior and getting the 
 matter settled without minuting, than in minuting and 
 sending the papers by a messenger. In any event, who- 
 ever settled the question must record his decision and must 
 give reasons. Otherwise it would be impossible, months 
 after the event, to answer a Parliamentary question 
 suggested by some interested person who sought to 
 criticize the decision taken, or to ensure Parliamentary 
 responsibility, which, in the case of a nationalized industry, 
 is analogous to responsibility to the shareholders of a 
 joint-stock company. The moment an industry passes 
 under the control of a State Department the old freedom 
 of private enterprise must disappear. New factors 
 foreign to purely business considerations arise in deciding 
 whether a particular course of procedure will bring the 
 Department into disrepute, and delay is caused in arriving 
 at decisions which are simple enough as business matters 
 to a private firm, but are immensely complicated when 
 Parliament and the public may have to pass judgment 
 upon them. 
 
 The question of the Civil Servants at the head of any 
 Government Department actually managing an industry 
 is crucial. Even if men of the greatest natural aptitude 
 were selected, and this seems impossible for the reasons 
 stated above, they would not have scope, under the rigid 
 rules which are inseparable from Government control in 
 immense organizations, to gain the particular experience 
 and self-reliance which are an indispensable part of 
 competition and cannot exist in a State-owned monopoly. 
 This part of the problem has not received adequate 
 attention from the supporters of nationalization. 
 
 It is also necessary to point out once again that these 
 Civil Servants at the head of a nationalized industry 
 would, rather than the Minister, be the virtual controllers, 
 
HOW NATIONALIZATION WOULD WOEK 43 
 
 and they could not fail to become bureaucrats. Their 
 instinct must inevitably be to attempt to hoodwink 
 inquisitive Members of Parliament. In actual working, 
 freedom would disappear, for the organization would be 
 so vast as to make genuine democratic control abso- 
 lutely impossible. 
 
 3. The Rest of the Staff. 
 
 The next factor in personnel in State -managed industry 
 would be the staff, other than the Minister and higher 
 officials. As regards the coal-mining industry, Mr. Justice 
 Sankey suggests that managing directors and the bulk 
 of the present officials should be offered an opportunity 
 of remaining at their present salaries. But would not the 
 result be that many of the best would go and all the medium 
 and worst remain ? Would not the outlook of those who 
 remained tend far less to efficiency than under the regime 
 of private enterprise ? In many of the voluntary amal- 
 gamations which have been made, a great deal of heart- 
 burning and unrest has been caused in the staffs of the 
 firms combining. It is probable that a much greater 
 amount of unrest would be caused if the whole of an 
 industry passed under Government ownership, control 
 and management. Such a step could only take place 
 as the outcome of a bitter political controversy, and the 
 staffs of the firms taken over would want to know who was 
 to be their real master in the future. Would they be able 
 to carry out the desires of official superiors who believed 
 discipline to be essential, or would their real masters 
 be the workers, who dislike discipline and want their own 
 way ? In the latter event, efficiency would certainly go 
 by the board. In the former, they would inevitably find 
 decisions on important questions greatly delayed in 
 comparison with conditions under private enterprise, 
 and delay in business matters is synonymous with a lack 
 of efficiency. 
 
 Another unwelcome situation would arise if the staff 
 
44 NATIONALIZATION OF INDUSTRIES 
 
 found themselves made the subject of public controversy 
 and the target of electioneering demagogues. The fear 
 of this would affect the action of many of the more 
 sensitive or less scrupulous. 
 
 One further effect of nationalization must be mentioned.' 
 There would be rigidity in scales of salaries for all sections 
 of the staff, and exceptions would not be made for specially 
 able officials. This may be controverted. It may be 
 said that the field of Government employment is so wide 
 that posts could be found for exceptionally able men 
 who had not sufficient scope in their then sphere of employ- 
 ment. Unfortunately, that is not how matters really 
 work. Government Departments tend to run in water- 
 tight compartments, and departmental quarrels and 
 jealousies occupy a great deal of public time and waste 
 a great deal of public money. An official may be tempted 
 from one Department to another, but only if his superiors 
 are willing that the transfer should take place. Each 
 Department tries to keep its abler men, for very obvious 
 reasons. 
 
 In these circumstances it seems impossible to expect 
 in a nationalized industry anything like the freedom of 
 private enterprise, so far as the staff is concerned. And 
 if there was less freedom, it is certain there would be less 
 efficiency. 
 
 4. The Manual Workers. 
 
 The fourth factor in personnel is the manual worker. 
 If, as I have shown, there is a strong probability of less 
 efficiency in the management of a nationalized industry 
 by a Minister responsible to Parliament, the Civil Servants 
 at the head and the managers and staff appointed by and 
 subordinate to them, what are the probabilities as regards 
 the general body of workers ? 
 
 The experience of the war is no guide. During the 
 war the whole country knew that its existence was at 
 stake, and nobly responded to the appeal for a prolonged 
 
HOW NATIONALIZATION WOULD WORK 45 
 
 and supreme effort. Everybody, gentle and simple, felt 
 it was up to him to do his best in the field, or the workshop, 
 or Government office, or wherever his duty led him to 
 fight or work. Failure to achieve success meant the loss 
 of everything we cared for, the end of the United Kingdom 
 as a Great Power, the collapse of the British Empire, 
 the loss at once of our commercial position and of all 
 that made life worth living to a self-respecting people. 
 In those circumstances the workers and all other classes, 
 whether in the trenches, in the mines or in the workshops, 
 made a unique response to a unique danger. 
 
 This fact proves nothing as to peace conditions. The 
 two great industries for which the State assumed financial 
 responsibility during the war, and which were, and still 
 are, controlled by the State, are coal-mining and railways. 
 The action of the miners and railwaymen since the armistice 
 are in marked contrast with their behaviour during the 
 war. No sooner had fighting ceased than they made 
 demands for heavy increases of wages, and pushed these 
 demands, by threat of direct action, at a moment when, 
 rightly or wrongly, the Government felt itself unable to 
 face a stoppage of industry. I am riot pronouncing a 
 judgment on their action, but merely proving that war 
 experience was no guide. A few months later the miners 
 again took the action which led to the appointment of 
 the Sankey Commission, whilst, in the autumn of 1919, a 
 sudden strike of railway workers produced paralysis in our 
 transport system. These actions on the part of the workers 
 in these two great industries, for whose finance the State 
 was responsible, are certainly not a confirmation of the 
 claim that they are ready to treat the State more con- 
 siderately than private individuals. They show clearly 
 that, in addition to economic pressure, they were ready 
 to bring political pressure to bear in industries for the 
 finance of which the State is responsible, and anyone 
 must be credulous indeed who, in face of their behaviour, 
 believes the statement of some spokesmen of Labour 
 
46 NATIONALIZATION OF INDUSTRIES 
 
 that strikes would disappear if the State were the direct 
 employer of labour. 
 
 Actions speak louder than words, and, with every 
 desire to do justice to the legitimate claims of Labour, 
 it is impossible to obtain from the action of Labour since 
 the armistice any confirmation of the claim that the 
 workers are ready to work harder for the State. The 
 very fact that some sections of miners have attempted 
 a revolt against the payment of income tax on any less 
 income than 250 a year also throws grave doubts on 
 their professions that the State has superior claims 
 on them. 
 
 It is difficult, indeed, to see why workers should work 
 harder for the State. If industries were nationalized, the 
 great mass of individual workers would be inconsiderable 
 units in a vast organization. It is true they would be 
 part proprietors of the organization, but their immediate 
 interest in results to be obtained from efficiency would 
 be so infinitesimal when compared with their interest in 
 their weekly wage, that efficiency would be relegated to 
 an inferior position in their minds. Furthermore, they 
 would believe that the supposititiously bottomless purse 
 of the taxpayer was behind them, and the moral obligation 
 to efficient work would really be less, rather than greater, 
 when compared with private enterprise. In firms of a 
 reasonable size under present conditions the worker often 
 feels a personal interest in the success of the firm he works 
 for. This would tend to disappear in huge State-managed 
 monopolies. 
 
 The Prime Minister, in his interview with the Trades 
 Union Congress Parliamentary Committee and the Ex- 
 ecutive of the Miners' Federation of Great Britain, on 
 October 10, 1919, said : 
 
 I do not think you can point to a single case where it can be 
 said that the workmen working for the commune, either the local 
 commune or the national one, work more heartily or increase the 
 output in comparison with their fellows who are working for a 
 syndicate, 
 
THE CASE OF PARTICULAR INDUSTRIES 47 
 
 This statement was challenged on the national issue 
 by the mention of war experience, but I have already 
 shown that war experience is no guide. The challenge 
 is ineffectual, and it would be folly to plunge into vast 
 schemes of nationalization on the strength of mere state- 
 ments that the workers would produce more if they were 
 working for the State. 
 
 The result of the general examination of how the 
 nationalization of industry would work is that a serious 
 lack of efficiency, as compared with private enterprise, 
 would be the inevitable result. As regards the Minister, 
 the Civil Servants at the head and the rest of the staff, 
 this is certain, and the promise of better results from the 
 workers is not borne out by proofs which carry any real 
 conviction to the mind even of the credulous. Human 
 nature being what it is, the well-known phrase " Govern- 
 ment stroke," indicating that Labour works less hard for 
 the State, seems rather to represent actual facts. 
 
 The Case of Particular Industries. 
 
 There remain to be considered the particular claims 
 made in regard to the nationalization of the coal-mining 
 industry, the railways and the land. It is argued by 
 some people that, while manufacturing industry in general, 
 and particularly manufacture for export, may reasonably 
 remain for a long time, or even permanently, in the field 
 of private enterprise, there are certain natural resources, 
 not provided by man and incapable of material extension 
 by him, and certain other creations of his own in universal 
 use, which are designed for the service of the nation as 
 a whole, and that these ought to be owned and managed 
 by the nation, and not by private individuals. For 
 instance, the land on which man lives and which produces 
 the food necessary for his existence ; the coal in the bowels 
 of the earth, the outcome of geological development through 
 long aeons of time for which he has no responsibility ; 
 
48 NATIONALIZATION OF INDUSTRIES 
 
 the railways made by individuals under Parliamentary 
 regulation, but a universal necessity of modern civilization, 
 are, by their nature, monopolies of which the nation, as 
 a whole, has the right of user, and which ought, therefore, 
 to belong to the nation, and not to selected individuals 
 in it. 
 
 It is true that if one imagined a new and empty world 
 to which millions of the inhabitants of this planet could 
 migrate and, in the light of experience of modern civiliza- 
 tion, set up a new State, it is conceivable that the land 
 system adopted would be different from that of any of 
 our older civilizations, that the minerals would be retained 
 as the property of the State, whatever the conditions 
 of working them might be, and that the State might build 
 and possibly work the railways required. 
 
 The essential difference lies in the fact that this is 
 not a new State, that we are face to face with the effects 
 of a long political and economic development which sets 
 limits to practicable changes in the immediate future. 
 To change the ownership of natural monopolies in a 
 civilized State, where private ownership is, and has been, 
 the settled rule for centuries, can only be accomplished 
 by confiscation or by purchase. Confiscation is not 
 recommended for Great Britain except by a few wild 
 extremists. Purchase at an equitable price is the only 
 alternative, and the practicability of purchase, at a time 
 such as this, involves huge additions to a National Debt 
 already unduly large ; it means the drying up of reservoirs 
 of saving hitherto available for the provision of capital 
 for the employment of an increasing population ; it raises 
 the general question, to which so much space has already 
 been devoted, whether efficiency of production can be 
 secured by nationalization of industry. The question, 
 therefore, as applied to the nationalization of the coal- 
 mining industry, of railways and of land, is a matter of 
 practical politics rather than of theory. Is it advisable 
 in present financial conditions in Great Britain to-day, 
 
THE CASE OF PARTICULAR INDUSTRIES 49 
 
 and in the existing state of mind of the people as a whole, 
 to nationalize any one, any two, or all three of them ? 
 
 It will be found in the examination of the proposals 
 regarding coal-mines, railways and land that the case 
 against nationalization varies greatly in regard to each 
 of them, but that there is one feature in common to them 
 all which should give pause to the " thus far " or partial 
 nationalizes. None of them are self-contained entities. 
 In the case of land it is obvious that land is necessary 
 for all industries, and the question immediately arises 
 to whom buildings required for industry would belong if 
 land were nationalized. Again, coal-mining and railways 
 are not industries working in watertight compartments. 
 Independent of the difficulties of separating the surface 
 of land from the coal underneath it, a great many coal- 
 mines are owned and worked by iron and steel companies 
 as part of their undertakings. Mr. Justice Sankey suggests 
 in his Report that owners of these composite undertakings 
 should have a right to compel the State to purchase them, 
 and that the State should equally have a right to compel 
 the owner to sell the whole undertaking, if the mines 
 cannot be economically or commercially severed from the 
 rest. If these composite undertakings are purchased by 
 the State, either voluntarily or at the request of owners, 
 the State will be launched on a new sphere of enterprise, 
 quite outside coal-mining proper, and in competition with 
 manufacturers of various kinds, working under private 
 enterprise. If, on the other hand, the State does not 
 acquire them, the coal-mining industry will not be com- 
 pletely nationalized. In other words, something con- 
 siderably less or considerably more than the coal-mining 
 industry must be nationalized. 
 
 As regards railways, the discussions on the Bill creating 
 the Ministry of Transport showed that railways are only 
 one means of transport ; and that docks, canals, coastal 
 traffic, tramways, omnibuses and motors are so closely 
 allied in function, or present such competing methods of 
 
 4 
 
50 NATIONALIZATION OF INDUSTKIES 
 
 moving goods and persons, that the Minister would have 
 liked powers to control them all. Again, if railways 
 were nationalized, the State would acquire many work- 
 shops producing engines and rolling-stock. The Minister 
 would probably soon find himself pressed to acquire all 
 other firms making the same commodities. By the same 
 methods of argument as are now used by advocates of 
 nationalization of mines and railways, he would soon be 
 pressed to take over the foundries which produce the 
 rails, the timber-yards which produce the sleepers, the 
 shops where the goods-wagons are built, and other ancillary 
 enterprises. 
 
 This is no fancy picture. In the present extraordinarily 
 complicated conditions of industrial production there are 
 few trades which are self-contained, and anyone who 
 lends himself to the cry of nationalization of any particular 
 industry on the ground that it is a natural monopoly, 
 while opposed to nationalization of industry as a whole, 
 will find he has taken a step down a very slippery slope, 
 and that it is difficult to discover a halting -place short 
 of the quagmire of complete socialization. 
 
 One further analogous consideration must also be 
 borne in mind. In any scheme of industrial nationalization 
 the State will become possessed, at heavy cost, of an asset 
 which may, in a few years, be largely superseded by new 
 inventions or new sources of supply. The danger is 
 especially great as regards coal and railways. It is not 
 an impossibility that, if the community acquired the coal- 
 mines, it might find, within a generation, that oil was 
 taking the place of coal for power, heat and illumination. 
 To take an actual instance affecting transport directly, 
 and the demand for coal incidentally, the London County 
 Council acquired the tramways immediately before the 
 arrival of the motor-omnibus, which has made them 
 partially obsolete. An immense quantity of goods traffic 
 is also now being carried by motor-lorries which formerly 
 went bv rail. This factor in the situation is, even if it 
 
THE COAL-MINING INDUSTRY 51 
 
 stood alone, a very formidable objection to the national- 
 ization either of the coal-mining industry or of railways. 
 
 The Coal'-mining Industry. 
 
 A concrete scheme has been put forward in the Sankey 
 Report for the nationalization of this industry. It differs 
 from the plan of the Miners' Federation in that it is a 
 more moderate and reasonable proposal, and therefore 
 better worth examination. 
 
 In itself the purchase of royalties, amounting to 
 6,000,000 a year, recommended by Mr. Justice Sankey, 
 is not a great undertaking. The proposal has the unani- 
 mous support of the Commission over which he presided 
 (except that of the miners' representatives, who ask for 
 confiscation), and it is difficult to refuse a claim so put 
 forward. Whether the Commission really convinced them- 
 selves that it was practicable for the surface and minerals 
 to be separately owned, a plan condemned by a previous 
 Royal Commission of which Mr. Smillie was a member, 
 I do not know. Neither do I understand why a special 
 Court of Appeal could not have been appointed to adjust 
 differences between colliery -owners and landowners and 
 so dispense with the necessity of purchase. But there 
 is no insurmountable objection on financial grounds to 
 purchase at a fair price. I can see no financial gain to 
 the State in the process, seeing that approximately half 
 the annual proceeds of this wasting asset are already 
 taken in taxation ; but there are political advantages. 
 
 The more important proposals are those for the 
 expropriation of the present colliery -owners by State 
 purchase, and for the management by a Mines Department 
 with a Minister responsible to Parliament, in other words 
 a politician, at the head. 
 
 The change is recommended on the ground that : 
 
 The relationship between the masters and workers in most 
 of the coalfields in the United Kingdom is, unfortunately, of such 
 
52 NATIONALIZATION OF INDUSTRIES 
 
 a character that it seems impossible to better it under the present 
 system of ownership. 
 
 That is Mr. Justice Sankey's conclusion as stated in 
 paragraph 30 of his Report. The Report signed by Mr. 
 Arthur Balfour of Sheffield, Mr. R. W. Cooper, Sir Adam 
 Nimmo, Sir Allan Smith and Mr. Evan Williams states, 
 on the other hand, in paragraph 20 of their findings : 
 
 It is regrettable that during the whole of the proceedings 
 emphasis has been laid on a state of antagonism which is alleged 
 to exist between the employers and the workpeople in the coal 
 industry. To such an extent is this feeling alleged to exist that it 
 is stated that the only means of overcoming it is to nationalize 
 the industry and to substitute the State for private enterprise. 
 
 From the evidence submitted, which is confirmed by our own 
 knowledge, no foundation exists for such an assertion. 
 
 There is thus a direct conflict of opinion between Mr. 
 Justice Sankey, who accepts the views of the miners' 
 representatives on the Commission, and the coal-owners' 
 representatives, who are in constant touch with the 
 miners themselves. 
 
 It seems necessary, in these circumstances, to try to 
 
 understand what is the point of view of those miners' 
 
 representatives who have induced Mr. Justice Sankey to 
 
 adopt their opinions. They are given in Mr. Frank 
 
 Hodges' interesting book on Nationalization of the Mines, 
 
 which has been recently published. Mr. Hodges writes 
 
 as if he were under the impression that private ownership 
 
 as at present in vogue connotes a body of shareholders 
 
 divorced from all interest in the mines and the workers 
 
 in the mines, except that of obtaining the utmost possible 
 
 profit out of them. In a desperate attempt to prove 
 
 that improvements in methods of production are opposed 
 
 by shareholders, because they would diminish profits, he 
 
 commits himself to the following remarkable statement 
 
 (p. 116): 
 
THE COAL-MINING INDUSTRY 53 
 
 If output is to increase under the present system, it must 
 increase because of slight improvements which may take place 
 here and there in the various mines, where the influence of the 
 shareholders is subordinated to the will of the strong men engaged 
 in the technique of production, who are consequently given greater 
 scope for self-expression than in other mines. 
 
 Anything more grotesquely untrue could not be imagined. 
 It is the shareholders who would benefit, as well as the 
 miners, by such improvements. Why then should they 
 dream of opposing them ? Furthermore, if the share- 
 holders in question are the " idle " shareholders of whom 
 we hear so much, they would know nothing about them, 
 and would have no say one way or the other. If, on the 
 other hand, the shareholders whom Mr. Hodges desires 
 to castigate are the large shareholders who are directors 
 and can exercise some influence over the management, 
 their first motive must be to increase production, and they 
 would be the last people to desire to oppose any " self- 
 expression " which would benefit, at one and the same 
 time, the miners, the other shareholders and themselves. 
 It is really a pity that arguments so futile should be put 
 forward. 
 
 There are idle and selfish shareholders whose ethical 
 standard as regards the workers is to be deplored, just as 
 there are idle, selfish and callous men among the workers 
 themselves ; but the main body of employers of labour 
 who are brought into managerial relations with labour, 
 and who are mainly responsible for working conditions, 
 are sufficiently humane and broad-minded to desire the 
 prosperity and contentment of the worker both for the 
 worker's sake and for the sake of the shareholder. Indeed, 
 in most cases the strongest spur to the managing-director 
 is not actual profit so much as relative success in com- 
 parison with other competitive organizations. He knows 
 this is best secured by the co-operation of all concerned. 
 At a time when he has learned this lesson thoroughly, 
 it is a little disheartening to find Labour leaders so grossly 
 misrepresenting his motives. 
 
54 NATIONALIZATION OF INDUSTRIES 
 
 The real state of the case, as it appears to me, is that 
 certain Labour leaders honestly believe nationalization to 
 be practicable and desirable, and that the wilder spirits, 
 who desire revolution, tell the workers that if they will 
 refuse to work under a system of private enterprise, or. 
 while working, will insist on day-wages and not work 
 hard, employers must capitulate and agree to national- 
 ization. Mr. Hodges in several passages betrays uneasiness 
 about the suggestion that the desire for a change of status 
 "is to some extent artificial ; that it is only felt by a 
 few select spirits among the vast numbers engaged in 
 the industry" (p. 115), and that "the average worker 
 is only interested in drawing wages, and that he is not 
 concerned about the output or the general conditions of 
 industry " (p. 130). He attempts to rebut the first 
 suggestion by stating that the majority of the schemes 
 for future control of the industry have emanated from the 
 miners themselves, and that the Sankey Scheme and the 
 Bill of the Miners' Federation have found their keenest 
 critics among the miners. But these makers of schemes 
 and critics are probably the " select spirits " alluded to, 
 and a small minority of the whole. The second suggestion 
 he confesses and avoids by arguing (vide p. 131) that, 
 under nationalization, time and experience will have an 
 educative effect and will produce an interest which does 
 not, on his own admission, exist at the present moment 
 in the minds of the great mass of the workers. 
 
 The most interesting passages in Mr. Hodges' book 
 deal with the grounds on which the claim for a change of 
 status on the part of the miners is based. These passages 
 give a plain statement of the demands being made, and 
 they show also a curious medley of prophecy, threat, 
 misrepresentation and moral appeal. Mr. Hodges recog- 
 nizes, quite rightly, that a moral or quasi-philosophical 
 support must be provided for the claim to nationalization. 
 The following extracts will give a fair example. The 
 first is a plain statement ; 
 
THE COAL-MINING INDUSTRY 55 
 
 It is because of the growth of education amongst the workers, 
 both manual and technical, that we have arrived at a point of view 
 which demands greater scope for individuality, and for self-expression 
 on the work in which they are engaged. And for this the wage 
 contract no longer suffices (p. 109). 
 
 It is impossible not to sympathize with such a desire, 
 but I shall show later that there are other and better 
 means than nationalization of accomplishing it. 
 
 Men now demand status in industry, and nothing can resist 
 such a demand (p. 109). 
 
 That is a prophecy, or threat, according as it is interpreted. 
 
 They [the workers] have arrived at the stage when they say, 
 " We want to be ... vested with such power in proportion to our 
 place in industry as will enable each of us to feel that he, as a unit, 
 is personally responsible for the conduct of industry. ... At 
 present we occupy the status of wage-slaves, but we desire to occupy 
 the status of free men." 
 
 During the era of modern capitalism the miners have enjoyed 
 the status enjoyed by other workers, precisely the same status 
 as that enjoyed by inanimate raw material or by horses and asses 
 engaged in production (pp. 109 and 110). 
 
 I hope the misrepresentation is unconscious, for anything 
 more remote from actual facts than that miners, who 
 demand interviews with the Prime Minister at any time 
 they choose, are treated like four-footed animals or 
 inanimate raw material, it would be impossible to con- 
 ceive. The rest of the passage has been already answered. 
 Mr. Hodges commits himself on p. 130 to the view that 
 nationalization of the mines is only a first step towards 
 the nationalization of all industries. If all industries are 
 nationalized the status of freemen will disappear. There 
 can be 110 freedom in such circumstances, for, as has been 
 pointed out before, no one will be able to choose the kind 
 or conditions of work, but will have to do exactly what 
 the State bureaucrats ordain. The vote which may be 
 left to him at election times will only remind him of his 
 
56 NATIONALIZATION OF INDUSTRIES 
 
 powerlessness as an insignificant unit in face of a gigantic 
 tyranny. 
 
 As an example of moral appeal the following passage 
 may be cited, viz. : 
 
 The labourer, besides having labour power to sell, is also 
 possessed of a human soul which is feeling the urge of strong aspira- 
 tions. He seeks to be something different in the future, and to use 
 his personality to influence and direct the processes in which his 
 physical and manual energies are engaged. He wants a greater 
 share in the direction of industry. The miner wants to be in his 
 job as a complete human being (p. 110). 
 
 When one considers that the men for whom Mr. Hodges 
 speaks follow a hard and dangerous calling, often in 
 conditions of great discomfort, and are also in many 
 districts the most intelligent of the working class, one 
 must feel the force of such an appeal. The more substance 
 there is in it, however, the more important is it that any 
 remedy to be applied should be on sound lines and not 
 of a kind which must lead to disappointment, disillusion 
 and possibly to disaster. 
 
 That disillusion must come if the scheme of the Sankey 
 Report is adopted is, I think, beyond question. Mr. 
 Hodges himself lays the greatest emphasis on the intense 
 desire to keep the industry out of the domain of bureau- 
 cratic influence (p. 117), and out of the hands of politicians 
 or those nominated by them (p. 105). Mr. Justice Sankey 
 in paragraph 76 of his Report writes : 
 
 It being of vital importance that the Mines Department should 
 be managed with the freedom of a private business, the present 
 Civil Service system of selection and promotion by length of service, 
 of grades of servants, of minuting opinions and reports from one 
 servant to another, and of salaries and pensions, shall not apply 
 to the servants attached to the Mines Department. 
 
 The precise meaning of the paragraph is far from clear, 
 but the general drift is unmistakable. Both Mr. Justice 
 Sankey and Mr. Hodges agree that nationalization can only 
 work satisfactorily if there is freedom from the restraints 
 
THE COAL-MINING INDUSTRY 57 
 
 which have hitherto existed in Government control and 
 management of nationalized services. Yet the Sankey 
 Scheme depends on a Minister who is to sit in and be 
 responsible to Parliament. At the risk of traversing again 
 ground already covered, it must be pointed out that by our 
 established traditions and practice he will be a politician, 
 and he must have control of his Department. It is 
 inconceivable that he should be responsible for decisions 
 made by the National Mining Council of which he does 
 not approve. He, and not the Council, is responsible to 
 Parliament, He must therefore have power to appoint 
 and change his chief officials ; he is by the scheme to 
 appoint the chairman and vice-chairman of the District 
 Mining Councils ; he is given a power of veto on resolutions 
 of the Local and District Mining Councils, and, as the 
 receipts of money in the industry are to be free from 
 Treasury control, he is to account to Parliament for them. 
 No Minister could accept such responsibilities without 
 exercising effective control. The universal tradition of 
 our Government is that the Minister accepts responsibility 
 for everything done in his department. He can only 
 exercise that control through permanent officials on whom 
 he can rely, and these permanent officials must become 
 bureaucrats. 
 
 In such a vast organization as the nationalized coal- 
 mining industry would be, the freedom of a private business 
 is impossible, as I have shown earlier, under the heading 
 " The Civil Servants who advise the Minister." 
 
 Mr. Justice Sankey has himself shown in paragraph 88 
 that the freedom of private enterprise is not to be allowed 
 to the Mines Department in one important respect. The 
 paragraph in question reads as follows : 
 
 The State shall not make or give any undue or unreasonable 
 preference or advantage to, or in favour of, any particular persons 
 desirous of purchasing coal for export, nor shall the State subject 
 any particular person desirous of purchasing coal for export to any 
 undue or unreasonable prejudice or disadvantage whatsoever. 
 
58 NATIONALIZATION OF INDUSTRIES 
 
 How he reconciled this paragraph with the perfectly 
 general statement at the beginning of paragraph 76, that 
 it is of vital importance that the Mines Department 
 should be managed with the freedom of a private business, 
 it is for him to explain. In any event it is perfectly plain 
 that, in any sale for export, very elaborate documentary 
 proof, all of which was quite unnecessary in a privately 
 managed colliery or firm before control was set up, would 
 have to be kept, in order to show (a) that no undue or 
 unreasonable preference or advantage in favour of any 
 particular person had been given, and (b) that such a 
 person had not been subjected to any unreasonable 
 prejudice or disadvantage whatever. What an interesting 
 crop of law r cases is suggested by such words lawsuits 
 which could not occur under a system of private enter- 
 prise ! 
 
 Mark further how the regulation would work in actual 
 practice. It is certain that there will be bad trade in 
 the future as there has been in the past. Suppose such 
 a time arrived after the Mines Department had made 
 a forecast of the results of ks business for the Budget, 
 and contracts at arranged prices with railway companies 
 and many large manufacturers. The general falling off 
 in trade would lead to a decrease of demand for coal and 
 the accumulation of stocks. Suppose in these circumstances 
 that an exporter offers a price for coal suitable for export, 
 that the price in question was apparently below the relative 
 level of the contracts already arranged, and yet was the 
 utmost he could afford in competition with America or 
 India, or Belgium or Germany. It would obviously be 
 to the interest of the Mines Department to accept such an 
 offer, the alternative being the stopping of mines or a 
 further slump in the price of coal. What is the Mines 
 Department to do in such a case ? The easier course 
 would be to refuse, because it is so easy to find a reason 
 for refusing a price. The right course would be to accept 
 the offer, But then comes the difficulty. Are prices to 
 
THE COAL-MINING INDUSTRY 59 
 
 be lowered for all coal, or only for the export coal ? The 
 coal in question would very probably not be of precisely 
 the same quality as had been sold to the railways and 
 manufacturers. If the price is reduced only for the 
 particular quality used for export, what a real sense of 
 grievance the home consumer would have ! In the other 
 event, if the price of all coal were reduced, what would 
 happen to the Budget ? Whatever was done in such a 
 case, until the Courts of Law finally interpreted the mean- 
 ing of the words " undue or unreasonable preference or 
 advantage," and " undue or unreasonable prejudice or 
 disadvantage," export business would be subject to the 
 greatest of all trade handicaps, uncertainty, and much 
 valuable trade would be lost to this country that would 
 have been retained under the present system of private 
 enterprise. That is the sort of case upon which Mr. Justice 
 Sankey would ask Civil Servants to advise their chief. 
 Its decision would involve a market forecast of an inter- 
 national kind, a heavy loss or fear of loss in the national 
 revenue, a chance of expensive lawsuits, a practical 
 certainty of an attack in Parliament. The business man 
 under the old .system settles such a question in half a 
 minute, or half an hour, or half a day, as the case may 
 be, and no loss of national revenue (except indirect and 
 infinitesimal), no lawsuit, and no Parliamentary attack 
 are involved in the affair at all. And the Mines Depart- 
 ment is to be managed with the freedom of private enter- 
 prise ! sancta simplicitas / 
 
 It is true that the problem of the Civil Servants at 
 the head of the suggested Mines Department is more 
 directly dealt with by Mr. Justice Sankey in paragraphs 
 41, 42 and 43 of his Report ; but those paragraphs are 
 based on the hypothesis that the experience of the war 
 has shown that the British nation was able " to provide 
 a class of administrative officers who combine the strongest 
 sense of public duty with the greatest energy and capacity 
 of initiative/' and that men are ready to re-enter the 
 
60 NATIONALIZATION OF INDUSTRIES 
 
 service of the State in peace-time and pass under the con- 
 trol of a Labour Government, if such a Government should 
 come into power. Nothing is further from the truth. 
 Most of the men referred to have already returned to their 
 private avocations, and so far from being enamoured 
 of Government control, even of the relaxed kind current 
 during the war, are only too glad to have " done their 
 bit " and be free. 
 
 Incidentally it may be asked of Mr. Justice Sankey 
 why in paragraph 39 of his Report he suggested that 
 the coke and by-product industry, " which is at present 
 only in its infancy," should be allowed to remain in private 
 ownership. Can the men (vide paragraph 41), " who are 
 just as keen to serve the State as they are to serve a private 
 employ er, and who have been shown to possess the qualities 
 of courage in taking the initiative necessary for the running 
 of an industry," not be trusted to run an industry in its 
 infancy ? If not, why not ? Is the private entrepreneur 
 the only person fit to run infantile industries ? This 
 paragraph 39 shows how much weight Mr. Justice Sankey 
 really attaches to " the capacity for initiative " which 
 in paragraph 43 is stated to be at the disposition of the 
 British nation for a State-managed industry. 
 
 Enough has been said to show (1) that the scheme 
 of Mr. Justice Sankey depends on a Minister who is a 
 politician, appointed by a Prime Minister who is a politician, 
 and that the real control must be in the Minister's hands 
 or the hands of those nominated by him (the very plan 
 deprecated by Mr. Hodges), and (2) that it is perfectly 
 impossible to work it with the freedom of private enter- 
 prise. 
 
 There remains to be considered the plea, almost 
 pathetic in its unconscious unreality, that the scheme 
 adopted by Mr. Justice Sankey does not involve bureau- 
 cratism, and is even antagonistic to bureaucratic control. 
 A man who is going to jump into the sea may declare 
 that he does not mean to get wet, but his declaration 
 
THE COAL-MINING INDUSTRY 61 
 
 does not affect the inevitable result of the plunge. In 
 the same way Labour may pretend that Mr. Justice 
 Sankey's scheme is not bureaucratic. That does not alter 
 the fact that it would lead to bureaucratism. 
 
 The advocates of nationalization treat Parliamentary 
 control as if it were the opposite of bureaucracy. So 
 far from that being the case, a Department managing 
 a vast industry, for which a Minister is responsible to 
 Parliament, must quickly lead to rigid bureaucratic 
 control being exercised. Parliament cannot itself control 
 detail in such a Department, but members can ask awkward 
 questions and raise troublesome debates. Those who have 
 been inside a Government office and concerned in drafting 
 answers to Parliamentary questions, or in taking part 
 in debate in defence of Government action, can best 
 understand the effect produced in the Department itself 
 by the questions or a threatened debate. If, as is frequently 
 the case, some question is raised in which the action taken 
 is not easy to justify to Parliament, the heads of the 
 Department take steps to secure that such a complaint 
 shall not again arise. The Minister issues instructions 
 accordingly, and these generally take the form of rules 
 diminishing local discretion and increasing centralized 
 .control. So, without any desire to increase bureaucratic 
 control, the necessities of the case force him in that 
 direction. 
 
 It may be urged that Mr. Justice Sankey's scheme 
 involves dividing Great Britain into fourteen districts, 
 and removes the fear of bureaucracy by decentralizing 
 control. I cannot agree with this view. Each District 
 Mining Council is to be composed of a chairman and 
 vice-chairman appointed by the Minister of Mines, and 
 twelve other members, four to be appointed by ballot 
 of the workers, and the remaining eight, representing 
 consumers, technicians and the commercial side, to be 
 appointed by the National Mining Council. It may be 
 noted in passing that the National Mining Council, which 
 
62 NATIONALIZATION OF INDUSTRIES 
 
 is to appoint these eight members, is itself to be appointed 
 by the District Mining Council, but I cannot find which 
 of these two august bodies gets itself into being first, 
 or how either can be got into being until the other one is 
 in existence. 
 
 The District Mining Council is to conform to certain 
 orders made by officials (paragraph 55) and, " subject to 
 the direction of the Minister of Mines," is to manage 
 coal extraction, the control of prices and the distribution 
 of coal. The members are to be appointed for three 
 years and paid a salary. They are to meet at least monthly, 
 and oftener if need be. They are to appoint all mine 
 managers, and commercial mine managers, also a com- 
 mercial committee and commercial manager whose duty 
 it shall be to buy stores and dispose of the output of coal. 
 
 In each of the fourteen districts there are on the 
 average at present over one hundred separate colliery firms. 
 If the District Mining Council is to do the work now 
 performed by a hundred Boards of Directors, a hundred 
 managing directors and a hundred agents, it is evident 
 they must give daily attendance, and would even then 
 have to delegate much of the work to officials. If they 
 do much of the work themselves, they, being paid Govern- 
 ment officials, must, sooner rather than later, become 
 bureaucrats, for it does not take long to acquire the 
 bureaucratic mind. In so far as the work is done by 
 other paid Government officials, subject to mere general 
 supervision by them, it will be bureaucratically done. 
 In either event, therefore, bureaucratism is involved in 
 the Sankey Scheme. I do not think anyone who will 
 work the matter out in his own mind can come to any 
 other conclusion. 
 
 If there were any doubt left on this point it is entirely 
 removed by the fact that the real motive forces in favour 
 of the nationalization of the coal-mining industry are 
 equally advocates of the nationalization of all industries. 
 It must be pointed out, once more, that if and when all 
 
THE COAL-MINING INDUSTRY 63 
 
 industries are nationalized, Government officials must 
 allocate work under a system of conscription of labour, 
 such as exists in Russia to-day. That is the logical and 
 inevitable end of nationalization. 
 
 Fortunately, a good deal of light is thrown both on 
 the general question and on bureaucratism by the practical 
 experience of New South Wales and of Germany. 
 
 In New South Wales coal-mines are in existence which 
 are worked by the Government, as well as other mines 
 worked by private enterprise, and there has been a per- 
 sistent agitation for many years by certain sections of 
 the Labour Party to nationalize the whole of the industry. 
 Yet, in spite of Labour Governments having been in power 
 there during many recent years, no proposal for national- 
 ization has been brought forward by them. It is un- 
 necessary to comment further on a fact so significant. 
 
 An experiment of even greater interest to Great Britain 
 has been made on a much larger scale in Germany. Un- 
 fortunately, no figures are available which show decisively 
 the relative efficiency and cost of coal -getting in the 
 national mines, when compared with those privately 
 owned. The most striking ascertained fact is that the 
 output of the State owned and managed mines in Germany 
 did not increase between 1881 and 1911 at as great a 
 ratio as that of the privately owned ones. 
 
 There may be reasons which would explain this 
 difference, but the report of the Commission appointed 
 by the German Government in November 1918 to consider 
 the question of socialization of industry makes such 
 severe criticism of the conditions existing in State-owned 
 mines that it is impossible to imagine they were managed 
 with the same ability and success as the privately owned 
 mines in that country. The Commission was apparently 
 appointed in the hope that it would recommend the 
 socialization of the whole industry. The following short 
 extracts from the part of the Report signed by all the 
 Commissioners are interesting and significant : 
 
64 NATIONALIZATION OF INDUSTRIES 
 
 The Commission, however, is unanimously of opinion that 
 the methods of organizing those mines which actually are State - 
 owned do not satisfy economic conditions ; these methods must be 
 reformed throughout before public influence can be increased. . . . 
 It is united in believing that all the methods used in the management 
 departments, in the engagement, promotion, and salarying of the 
 staff, in book-keeping and accounts, in short, the entire organization 
 of a normal State -owned mine, is, on account of its bureaucratic 
 principles, an immense obstacle in the way of the industrial ex- 
 ploitation of the mines. Every extension of State -ownership of 
 industry is uneconomic and to be rejected, as long as a complete 
 separation has not been effected between the industrial activities 
 of the State and its political and administrative activities, as long 
 as the industrial enterprises of the State fail to break with bureau- 
 cratic traditions. 
 
 Dealing with instances of inefficiency in the cumbrous 
 State organism they add : 
 
 Expert officials were overburdened with detailed work; their 
 employment changed for no practical reason ; the salaries ex- 
 tremely low, and when compared with those offered in the non- 
 State-owned trade, quite absurd ; their initiative circumscribed ; 
 there was a wide lack of any desire to assume responsibility in 
 financial questions, a complicated system of authority stretching 
 up to a dependence on Parliament ; years were taken to negotiate 
 questions which are decided in a few hours in the non- State -owned 
 trade ; in short, control superimposed on control instead of con- 
 fidence or incentive to independent work. . . . 
 
 The importance of these extracts lies, firstly, in the 
 emphasis laid on the deadening hand of bureaucratic 
 control existing in the State -owned mines in Germany, 
 and secondly, in the principle definitely laid down that 
 " State -ownership of industry is uneconomic and to be 
 rejected, as long as a complete separation has not been 
 effected between the industrial activities of the State and 
 its political and administrative activities." 
 
 Experto crede. The psychology of Germany lends 
 itself to successful bureaucratic organization more readily 
 than that of Great Britain. Yet, in face of German 
 experience of the disastrous effects of intertwining 
 industrial with political and administrative activities, 
 
THE RAILWAYS 65 
 
 Mr. Justice Sankey and his Labour colleagues recommend 
 a system which has the fatal error of dependence on 
 Parliament, so forcibly condemned by the German Com- 
 mission after many years of actual experience. The 
 whole Report, with the majority and minority schemes 
 for avoiding the cardinal error of dependence on Parlia- 
 ment and of the bureaucratism which must arise where 
 such dependence exists, is well worth study. It gives 
 the most striking confirmation of the arguments I have 
 attempted to bring forward against the practicability of 
 the scheme suggested by Mr. Justice Sankey. 
 
 One word must be said in conclusion on the finance 
 of nationalization of the coal-mining industry. Whether 
 the sum required were 300,000,000, or somewhat less or 
 more than that sum, it is quite clear that our national 
 finances are not in a condition to allow additions of such 
 magnitude to be made to the National Debt without 
 securing some end of great political and social importance. 
 Compared to the cost of purchasing the railways, or the 
 land, however, the amount of money required is relatively 
 small. At the moment it is practically impossible to raise 
 such a sum, but the objections to the nationalization of 
 the coal-mining industry rest rather on the impracticability 
 of the scheme than on any permanent impossibility of 
 financing the operation. 
 
 The Railways. 
 
 The case of railways is different in almost every 
 respect from that of coal-mines. They have been 
 financed in this country on different lines from those 
 adopted in almost every other industry. Broadly speak- 
 ing, the whole of the net earnings have been paid away 
 in interest and dividends. Alterations and extensions have 
 not been provided out of the savings made in the industry, 
 but by new issues of capital raised in the open market. 
 
 5 
 
66 NATIONALIZATION OF INDUSTRIES 
 
 The State could borrow the money required as easily as 
 the companies can raise it, and a little more cheaply. 
 
 So far from nationalization of railways being the 
 exception, it is the rule in many, if not most, of the countries 
 of the world. Railways in any country are confined to 
 national territory, and no question of export trade in com- 
 petition with other nations arises in regard to them. All 
 railways, whether nationalized or not, are subject to 
 Parliamentary control, both as to the lines built, the 
 maximum rates chargeable and many other details. Un- 
 restricted competition is, practically, never allowed. 
 They have never been run with the freedom hitherto 
 enjoyed in most branches of industry and commerce. 
 They are, admittedly, a more attractive field for State 
 ownership and management than coal-mines. 
 
 On the other hand, no country has nationalized its 
 railways as a result of weighing the advantages of public 
 and private ownership. Prussia built railways in the 
 poor provinces east of Berlin when the chance of return 
 was inadequate to attract private enterprise, and Bismarck 
 was actuated by military considerations, and his desire 
 to obtain State control of the means of transport, in 
 nationalizing the other railways of that kingdom. Belgium 
 purchased the railways after the break with Holland in 
 1830, for fear of the Dutch obtaining control of them. 
 Switzerland was also actuated by the fear of foreigners 
 obtaining control when she took similar action in 1898. 
 Italy inherited her railways from the States which form 
 part of the united country to-day. About the same time 
 (1878) when a Royal Commission in Prussia reported in 
 favour of nationalization, an Italian Royal Commission 
 denied that Government could manage railways more 
 cheaply, and referred to the serious political dangers 
 involved. In 1885 Italy leased her railways to three 
 private companies, but assumed possession of them again 
 in 1905, after a series of disputes with the lessees. Japan 
 was actuated partly by military reasons and partly by 
 
THE RAILWAYS 67 
 
 a desire to reduce rates for commercial reasons. Canada 
 has been recently driven to buy all her railways, with the 
 exception of the Canadian-Pacific, because they were 
 unprofitable and yet vitally necessary to her prosperity. 
 There was no one but the State strong enough to shoulder 
 the burden. 
 
 Although it is particularly easy in the case of railways 
 to show strong arguments in favour of amalgamation, 
 I know of no facts which go to show that nationalization 
 of railways has been more successful and economic than 
 private ownership. Prussia is the outstanding example 
 of relative success ; but it must be remembered that the 
 railways were acquired just before the great commercial 
 expansion of Germany began, and that the times were 
 thus exceptionally favourable. On the other hand, the 
 State railways of Bavaria, Wiirtemberg and Baden 
 obtained no such success as those in Prussia. It must 
 also be remembered that the railways in England and the 
 United States were a progressive and paying proposition 
 under private enterprise. 
 
 In France the purchase and management of the Western 
 Railway by the State, due to the initiative and will-power 
 of M. Clemenceau, was so little a success that the deficit 
 increased from 35,000,000 frs. in 1909 to 77,000,000 frs. 
 in 1911. The disappointment caused by this failure 
 appears to have greatly diminished France's desire for 
 further nationalization before the war. In this country, 
 immediately before the war, there was a distinct tendency 
 to an increase both of earning power and dividend. In 
 Belgium the State Railways made ends meet up to 1912, 
 but the expenditure in recent years had been increasing 
 faster than the receipts. In the State railways of Italy 
 and of several of our dominions there was a similar tendency 
 to a diminished return on capital. 
 
 There is also a good deal of evidence in the case of 
 nationalized railways of the danger of dependence on 
 Parliament. It has already been pointed out that in 
 
68 NATIONALIZATION OF INDUSTRIES 
 
 Australia it has been found advisable to appoint com- 
 missioners at the head of the railway undertakings who 
 are independent of politics. In the recent changes in 
 the direction of nationalization in Canada, I understand 
 that the majority of directors are business men appointed 
 for their special fitness for the work, and that only a 
 minority of Government nominees have been added to 
 the Board to watch over Government interests. Such 
 conditions of management are entirely different from the 
 scheme of Mr. Justice Sankey for the coal-mining industry, 
 with a Minister responsible to Parliament at the head. 
 
 The recent experience of this country in regard to 
 railway control has not been happy. Just as in regard 
 to the price of coal there have been sudden changes 
 which have shocked and alarmed the business world, so, 
 in regard to railways, there has been a lack of prevision 
 which has led to a serious muddle and the need for sudden 
 and drastic alterations in transport charges. Certain 
 docks and harbours which have not been controlled have 
 presented Bills to Parliament, even during the war years, 
 and have been allowed to increase charges gradually with 
 the growth in wages and costs. Can it be doubted that 
 if railways could have been left under private management 
 (I admit it was not feasible) their directors and expert 
 managers would have induced Parliament to alter their 
 maximum and actual charges by degrees, and would thus 
 have tended to avoid the congestion at the docks which 
 has been caused by the charges for goods traffic remaining 
 unaltered during the war, while those for traffic of the 
 same goods by sea were enormously enhanced ? 
 
 If these considerations stood alone, it seems highly un- 
 desirable to attempt to nationalize British railways at the 
 present time. A Minister of Transport has been appointed 
 as a temporary measure to exercise control over the rail- 
 ways and to survey the whole situation. One of his first 
 steps has been to take in hand the necessary increases of 
 rates for goods traffic. When these are settled and the 
 
THE RAILWAYS 69 
 
 Minister is able to report on them and other matters 
 committed to his charge, it will be time enough to con- 
 sider other changes. 
 
 The considerations to which I have already referred do 
 not, however, stand alone. There is the danger, already 
 alluded to, of railways being largely superseded by other 
 forms of traffic. The question of finance also seems to 
 prohibit nationalization for many years to come. I do 
 not propose to enter on the difficult and thorny question 
 of the basis of purchase of the railways if they are nation- 
 alized. Whether the sum required is 900,000,000, the 
 Fabians' figure, or, as is more probable, 1,200,000,000 to 
 1,400,000,000, no Chancellor of the Exchequer in his 
 senses will agree to such an addition to the National 
 Debt until great reductions have been made in the burden 
 the people of this country now have to carry. 
 
 The levity of the answer to this objection made by 
 the Fabian Research Department is extraordinary. It is 
 said, " The nation is just as much * in debt ' for its railways 
 at present as it would be after the existing shareholders 
 had been transformed into holders of Government stock/* 
 that " the money market would be entirely untouched," 
 arid that " what is suggested is merely the substitution 
 of one printed document for another." Seeing that the 
 nation is not, as a nation, in debt for one single pound's 
 worth of railway debenture or stock, all being held by 
 private individuals, the statement is untrue, and it is 
 merely foolish to say the money market would not be 
 affected by the transfer at a time when the Government 
 is unable to face the funding of a floating debt which 
 is somewhat similar in amount to the value of the 
 railways. 
 
 The conclusion of the question is that while there 
 are not the same grave objections to the nationalization 
 of railways as there are to the nationalization of the coal- 
 mining industry, it seems impossible to undertake such 
 a step for many years to come on the ground of finance. 
 
70 NATIONALIZATION OF INDUSTRIES 
 
 Judging also by experience, there seems little probability 
 of making a financial success of the change, and if ever 
 the operation is concluded the controlling organization 
 should not be a Department, dependent on a Minister, 
 who is in his turn dependent on Parliament. 
 
 The Land. 
 
 It hardly seems necessary to deal seriously with the 
 proposal to nationalize land. In one sense the national- 
 ization of land would involve the nationalization of all 
 industries, for, strictly speaking, land cannot be separated 
 from the buildings upon it in which the industries are 
 carried on. If land and buildings were nationalized, the 
 latest figure of their value which I have seen given 
 officially, and it only included the valuations made up 
 to some time in 1916, I think, was 5,260,000,000. 
 Apparently the present proposals of the Land Nationaliza- 
 tion Society fall far short of this, and at present they 
 desire to nationalize land and farm buildings only, the 
 value of which they reckon to be 1,400,000,000. Even 
 the smaller figure puts the suggestion absolutely out of the 
 range of practical politics, because it would be financially 
 impossible at present. 
 
 It is obvious that if the larger scheme were attempted 
 the nationalization of land would include the nationalization 
 of the works where all the industries of the country are 
 carried on. How the Minister of Land would quarrel 
 with his colleagues who were Ministers of Coal Mines, 
 of Railways, of Engineering, of Textiles and other matters 
 in such circumstances may be left to the imagina- 
 tion. As regards agricultural land, nationalization is 
 many degrees more practicable (apart from the question 
 of finance) than the nationalization of farming, but 
 its political and economic effects are impossible to 
 predict. 
 
AN ALTERNATIVE POLICY 71 
 
 An Alternative Policy. 
 
 Hitherto my argument has been directed to proving 
 that nationalization as defined is not the right remedy 
 for any ills we are suffering from in the world of industry. 
 It is not sufficient, however, for a Liberal to rest satisfied 
 with a negative conclusion if the ills complained of are 
 real, and if it is possible for him to suggest a satisfactory 
 plan to deal with them. The real test for him to keep 
 in mind is the pursuit of freedom. The price of liberty 
 is eternal vigilance, and if real freedom and self-expression 
 are still denied to great masses of the citizens owing to 
 industrial conditions, and it is possible for a remedy to 
 be found, it must be the desire of every person who has 
 the root of Liberalism in him, whatever political label 
 he adopts, to find that remedy. 
 
 The two objects to be aimed at are a greater share of 
 control . for the workers and a better basis of division 
 of the profits of industry. The two conditions precedent 
 to be kept in mind are the preservation of efficiency and 
 the maintenance of an adequate incentive to ability and 
 energy among all engaged in production. Nationalization, 
 as defined and examined hitherto, fails in both respects. 
 The right conception is co-operation and copartnership, 
 the best brains being united in the effort to produce as 
 much as possible, as cheaply as possible, with an incentive 
 to all interested to do their best. The wrong conception 
 is " camouflaged Syndicalism," a phrase for which I ara 
 indebted to a recent writer in The Times, which would 
 really leave the dictation of conditions to one element 
 in production, and that the least instructed. 
 
 Many spokesmen of Labour do not appear to recognize 
 how free the abler and more thrifty workman has been 
 in the past to improve his position and rise from the 
 ranks. If ever there was a carrier e ouverte aux talents, 
 it has been in the commercial and industrial world of the 
 last century. Lord Pirrie and Lord Leverhulme are two 
 
72 NATIONALIZATION OF INDUSTRIES 
 
 conspicuous present-day examples among many of what 
 energy, ability and courage, without any adventitious aid, 
 can accomplish. The whole history of the growth of our 
 modern commerce and industry, from the days of Watt 
 and Arkwright to the present time, is a record of men 
 who have risen from poverty to affluence by their own 
 inventive faculty, thrift, ability or hard w r ork. The 
 great growth of the income tax paying classes before the 
 war was due to men who rose from the ranks. The 
 possibilities of the future in this direction are greatly 
 enhanced by the spread of education, the abolition of 
 the half-time system and the increase of continuation 
 schools. It is absolutely essential that thrift, ability, 
 hard work and the inventive faculty should be encouraged, 
 in the future even more than in the past. If Labour is 
 admitted to a greater share in management, it must be on 
 the understanding of a levelling up of Labour effort, and 
 not of a levelling down. There are elements in Labour 
 which desire more control, simply out of envy at the success 
 of others, and with the intention of diminishing incentive 
 in their more hard-working fellows. That is not the wish 
 of the wiser and better representatives of Labour, and 
 it represents a policy which can only end in disaster and 
 reaction. 
 
 Labour representatives probably also exaggerate 
 greatly the possible addition to their wages, even if the 
 whole of the net profit payable to the wealthier classes 
 were transferred to the worker by confiscate! y legislation. 
 Mr. Bowley, dealing with the figures of 1911, calculated 
 that, as regards home-made income, the utmost amount 
 transferable was 200,000,000 to 250,000,000, and that 
 on the then prevailing scale of wages this sum would have 
 little more than sufficed to bring the wages of adult men 
 and women up to the minimum of 35s. 3d. weekly for a 
 man and 20s. for a woman. That much, if not the whole, 
 of the sum would have disappeared in the course of 
 transfer goes without saying. 
 
AN ALTERNATIVE POLICY 73 
 
 During, and since, the war the net profit paid to the 
 recipients of large incomes, after deduction of Excess 
 Profits Duty, income tax and super tax, has apparently 
 not increased at all on the whole. Wages have more than 
 doubled. The latest super tax returns show, after de- 
 ducting tax, an actual diminution. The total value of 
 incomes assessed for super tax in the year 1914-15 was 
 245,000,000. The similar figure for 1918-19 is given 
 (Cmd. 502, 1920) as 340,000,000, but this includes, I 
 presume, incomes from 2,500 a year, while in 1914-15 
 3,000 was the minimum taxable. The figures for 1920 
 may be higher, but deducting income tax at 6s. in the , 
 and super tax estimated at 39,000,000 from 340,000,000 
 (which is too high a figure in comparison with 1914-15, 
 as I have explained), only 199,000,000 net is left. De- 
 ducting Is. 8d. in the , the pre-war rate, from 245,000,000 
 leaves over 224,000,000, an actually larger sum. Men in 
 receipt of large incomes to-day pay more than half of 
 their receipts in income tax and super tax. If they have 
 the same amount to spend or save now as they had 
 before the war, they must have doubled their gross 
 incomes, but this ignores the rise in prices. If the rise 
 in the price of commodities is taken into account, they 
 need three to four times their old incomes to be in the 
 same position as they were before the war. 
 
 In some industries the net income received is much 
 less than before the war. In railways, for instance, 
 the interest and dividends paid to shareholders was 
 44,000,000 approximately both in 1913 and 1919. But 
 while in 1913 the net amount received after deduction 
 of income tax was 41,430,000, in 1919 it was only 
 30,800,000. In the meantime the amount paid in wages 
 had increased from 47,000,000 to 114,000,000, subject 
 in the latter year to a payment of perhaps 2,000,000 
 or 3,000,000 for income tax. If a further allowance were 
 made for super tax it would be found that while wages 
 had increased by 140 per cent., the net reward of capital 
 decreased by 35 or 40 per cent. 
 
74 NATIONALIZATION OP INDUSTRIES 
 
 It is clear, therefore, that the net addition that could 
 be made to the remuneration of labour by transferring 
 the whole of the net annual reward of capital to the wages 
 fund (after payment of taxes and deduction of savings) 
 would allow of a less increase proportionately than would 
 have been the case in the year 1911, for which Mr. Bowley's 
 -calculations were made. 
 
 Practically the whole of the 400,000,000 annual 
 savings before the war were made by the wealthier 
 classes ; similar saving is a vital necessity in the 
 future if industrial progress is to be possible. In 
 any rearrangement of the surplus reward of capital 
 between Capital and Labour, the importance of the 
 terms of transfer encouraging saving should be borne 
 in mind. 
 
 In the circumstances, the remedy I venture to advocate 
 is a share in control to workers and a system of profit- 
 sharing. The proposals are not novel, and I am aware 
 that the extreme representatives of Capital and Labour 
 both fight shy of them. That fact constitutes no valid 
 argument against them. There are, it is true, great 
 difficulties to be overcome. In the coal-mining industry, 
 for instance, the circumstances of different mines vary 
 so greatly that it would be necessary to pool the profits 
 available for profit-sharing over a wide area. Smaller 
 variations in individual firms in other industries might 
 render voluntary schemes not easy to arrange. Indeed, 
 if the matter is to be dealt with, it is eminently a question 
 in which the Government, in the capacity of an honest 
 broker, should render assistance. First of all, a general 
 willingness on the part of the more moderate representatives 
 of Capital and Labour to work in the direction of the change 
 needs to be created. But the advantages to be gained are 
 so great that, in face of the unrest which has existed for 
 so long, the attempt ought to be made. 
 
 The greater participation of the workers in control 
 would enlighten them in regard to the difficulties of 
 
AN ALTERNATIVE POLICY 75 
 
 management. To take one instance only, what do the 
 workers know or care to-day about the finance of industrial 
 enterprise ? When a banker sends for the representatives 
 of a firm and tells them their overdraft must be reduced, 
 and they are faced with the necessity of selling at a loss 
 in order to find the necessary money, it would do good 
 in many cases if some of the workers understood the 
 position and were able to sympathize with it. It is a 
 false diagnosis that " there is obviously between Capital 
 and Labour a direct antagonism of interest, fundamental, 
 unbridgeable, unending so long as the system lasts." 
 The words are those of a clergyman spreading the gospel 
 according to Karl Marx, and not that of Jesus Christ. 
 
 On the contrary, there is a real identity of interest 
 between Capital and Labour, and the need of the present 
 time is to substitute a genuine copartnership for a con- 
 dition of things in which all the risks and anxieties and 
 all the profits go to one partner, while a stipulated wage 
 is paid to the other, with 110 adequate interest in final 
 results. An equitable division of surplus profits, over and 
 above a reasonable agreed minimum return to capital, 
 would make all the workers interested in securing a 
 proper output, bring keenness in competition with others, 
 and loyalty and devotion where suspicion and even hos- 
 tility have sometimes held sway. 
 
 Another aspect of the question which appeals greatly 
 to me is, that where there are surplus profits to divide 
 between employers and employed, some of the profits 
 should be payable in stock or shares to the workers. 
 The experiment has already been made with success in 
 certain well-known cases. It is most important from 
 the point of view both of the workers themselves and 
 of the country. Such a plan teaches in a practical way 
 the benefits of saving. The stocks or shares distributed 
 to the workers might be new capital, if such were needed, 
 or transfers from existing holders if new capital were 
 unnecessary. There is no reason why, in course of time, 
 
76 NATIONALIZATION OF INDUSTRIES 
 
 in prosperous industries, the bulk of the capital should 
 not be held by the workers themselves. And when the 
 advantages of saving and the experience of management 
 had led to a real understanding and recognition of the 
 identity of interest between Capital and Labour, experi- 
 ments in nationalization could be undertaken if the 
 workers still desired them without the appalling dangers 
 with which such experiments would be attended to-day, 
 as part of what would really be a class war. 
 
 There is still another advantage of the utmost impor- 
 tance to be mentioned. An equitable profit-sharing scheme 
 would make wages disputes almost impossible. A standard 
 list of wages would be the foundation of such a scheme at 
 its commencement. After wages, salaries, and the financial 
 claims of outsiders were discharged, the first call on the 
 surplus would be the agreed minimum reward of the 
 capital employed, and the remainder would be divisible in 
 agreed proportions between capital and labour. If the 
 division were equitable, the alteration of the standard 
 rafe of wages would be a matter of far less importance 
 in the future than it has been in the past. It might even 
 become a matter of indifference both to Capital and Labour. 
 I have heard of one very striking case of a profit-sharing 
 scheme of many years' standing, with representatives of 
 the workers on the management, where the workers' 
 representatives objected for a time to a war-time advance 
 of wages because of its effect in lessening the profit dis- 
 tribution. si sic omnes ! 
 
 The old objection that workers will be ready to share 
 in profits when times are good, but will not share in losses 
 when times are bad, is not really sound. In the long run 
 they must suffer, as capitalists do, if trade is unprofitable. 
 They would not, any more than now, be asked to pay 
 losses out of their wages. The real point is that with a 
 better understanding of the difficulties which participation 
 in the management would give, with the standard wage 
 secured as now, and with a reasonable chance of profit 
 
AN ALTERNATIVE POLICY 77 
 
 distribution, they would have a reason for putting heart 
 into their work which does not exist to-day. 
 
 The experiment has been tried most successfully. In. 
 the South Metropolitan Gas Company the whole relations 
 between workers and management have been altered 
 thereby for the better. The Copartnership Committee of 
 the company has considerable powers and responsibilities, 
 and in the words of the Chairman has developed into a 
 " small-scale Parliament of Labour with business-like 
 habits." Besides the South Metropolitan Gas Company 
 there are over a hundred and fifty other firms with profit- 
 sharing schemes actually in existence. The number 
 increases year by year, and some of them, such as Messrs. 
 Lever's and Messrs. J. and T. Taylor and Co., have already 
 distributed hundreds of thousands of pounds among the 
 workpeople. On the other hand, it must be acknowledged 
 that a good many schemes have broken down after trial, 
 the cause in many cases being an insufficiency of divisible 
 profit to make them a success. It is true also that the 
 policy has not made general progress over wide areas 
 of industry. That is because the need for any change 
 has not been sufficiently recognized until now. Con- 
 servative or reactionary employers have, naturally enough, 
 fought against profit-sharing, while the Socialist element 
 among the workers, misled by the teachings of Karl Marx, 
 have followed the will-of-the-wisp of nationalization and 
 have treated Capital as an enemy to be conquered, instead 
 of a necessary element in production with which it was 
 right to co-operate. Let us hope that wiser counsels may 
 prevail in a not distant future. 
 
 So much on the general principle. A word must be 
 said on profit-sharing in the coal-mining industry and 
 railways. Unfortunately, the Government has been 
 slipping into the condition of employer in both these 
 industries, as regards wage disputes. Not only are they 
 responsible for deficits, or the distribution of surpluses, 
 if surpluses exist, in both these industries, but the 
 
78 NATIONALIZATION OF INDUSTRIES 
 
 Prime Minister is invariably called in when any disputes 
 occur. This is a most undesirable development. An 
 industrial court, with a strong impartial element, would 
 be a much better medium for settling such differences. 
 This consideration emphasizes the undesirability of nation- 
 alization in the sense of complete ownership arid manage- 
 ment by the State. They are instances of essential 
 industries in which profit-sharing at the expense of 
 the public could not be permitted without restriction. 
 In the case of the railways this restriction is safeguarded 
 by Parliament retaining control of rates. In the case 
 of the coal-mining industry, dependent in part on export 
 trade, it is probable that, before many years are past, 
 the effect of international competition will curtail any 
 possibility of unreasonable profits. But in both cases 
 reorganization seems necessary. The case for amalgama- 
 tion in regard to railways is, as I have already stated, 
 a strong one. In regard to coal-mines, employers them- 
 selves suggest a scheme for amalgamation in areas. The 
 Government is proposing fresh legislation in regard to 
 both industries at the present time, 
 
 There is only one further observation to be made. 
 If, as I have attempted to prove, nationalization (in the 
 sense defined) is not a cure for the industrial ills we suffer 
 from ; if it is essential to retain the incentives to ability, 
 energy and sustained effort which private enterprise has 
 given ; if it is desirable that these incentives should be 
 open to Labour to a greater degree than they have been ; 
 i 1 Labour has made good its claim to a greater share in 
 the control of industry, there is no scheme which would 
 retain what is good in the past, and secure what is 
 necessary in the future, so well as that of profit-sharing 
 for the worker, coupled with a share in the management 
 of the industry in which he is employed. In industrial 
 matters the end of an epoch has indeed come. Shall we 
 have wisdom to create a new and better one ? 
 
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