Mr. Rothbard is a free-lance writer and has taught economies at The City College of New York.
Ever since railroads were established by private enterprise, they have been a favorite candidate for nationalization. France offers a typical story of government operation of the railroads.
France took its first halting step toward nationalization of railways in 1876 when it took over one small railroad. What with large deficits and poor service, the experiment was unsuccessful. The government’s excuse was that its railroad holdings were not extensive enough.
Accordingly, the French government purchased the large and important Western Railway system in 1908, in spite of strong opposition in the Senate. The purchase was authorized only after Premier Clemenceau threatened to resign if the proposal did not pass.
The effects of the new regime of government ownership were rapid and far exceeded the warnings of the opposition. The entire railroad was in disorder. A series of major accidents occurred on the government line, although there were no such accidents on the private lines. An economist sardonically observed that the French government had added railway accidents to its growing list of monopolies. The nationalized train service deteriorated to such an extent that many people preferred to travel by wagon. Inefficiency caused heavy losses on freight en route, and the railway was obliged to pay large indemnities for losses. These payments were ultimately covered, of course, by the French taxpayers.
After watching the inept operation for three years, the French Senate passed a resolution condemning the “deplorable conditions” of the state railroad system.
Costs of operation increased rapidly under state management, although Clemenceau had assured the deputies that costs would not increase. In 1908, the last year of private operation of the Western Railway, costs totaled 147 million francs. By 1911, costs had increased to 204 million; and net revenue had declined 60 per cent.
Service on the railway was set back 50 years. In 1908, the length of time for a trip from Rouen to Paris was 2 hours and 11 minutes. After three years of government operation, the time had increased to 2 hours and 39 minutes, a rise of 20 per cent—seven minutes longer than the time for the trip when the railroad first began operations in 1865.
Another comparison is provided by the Belgian state-owned railway which was directly adjacent to the privately-owned French Northern Railway. The roads were of similar size and faced comparable conditions, and in 1911 both railways charged practically the same rates. The privately-operated French Northern paid taxes of 28 million francs and rent of 41 million, with 31 million francs remaining as profit. Yet, the Belgian state railway, which paid neither rent nor taxes, operated at a loss.
Not until 1937 was the campaign to nationalize all French railroads completed. The government took over the railroads at the end of that year, and formed a National French Railway Company. The French government controls the organization, and owns 51 per cent of the stock of the new company; the other 49 per cent of the stock is privately owned.
The results? The railroad operating loss was 2.6 billion francs in 1938. In addition to such losses, the French taxpayers have footed the bill for a 38 billion franc Reconstruction Fund, and a 33 billion franc Modernization and Equipment Fund.
The main contention of the government, when it took over the French railroads in 1937, was that nationalization would render operations more efficient and permit a balanced budget on the railroads.
The vigorous attempts of the new National Company to balance its budget centered in sharply raising railroad rates. From 1937 to 1938, first-class passenger rates were increased by 38 per cent, third-class rates by 65 per cent, and freight rates by 25 per cent. It also removed a subsidy estimated at 500 million francs annually that the post office had received through low rates.
These measures caused operating revenues of French railroads to increase from 12,670 million francs in 1937 to 15,600 million in 1938. Operating costs, however, rose even faster, from 14,720 million francs in 1937 to 18,200 million in 1938. If fixed charges are included, the total deficit amounted to almost seven billions in 1938.
The French railroad budget is further from balance today than it was when the National Company was first formed.