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UNIVERSITY OF CALIFORNIA
AT LOS ANGELES




THE GIFT OF

MAY TREAT MORRISON

IN MEMORY OF

ALEXANDER F MORRISON



THE FABIAN SOCIALIST SERIES, No. 5



THE COMMONSENSE OF
MUNICIPAL TRADING



THE FABIAN SOCIETY

FOUNDKD I8S3

THE FABIAN SOCIETY consists of men and women who
are Socialists, that is to say, in the words of its "Basis," of
those who aim at the reorganisation of society by the emancipa-
tion of Land and Industrial Capital from individual and class
ownership, and the vesting of them in the community for the
general benefit. . . . For the attainment of these ends the
Fabian Society looks to the spread of Socialist opinions, and the
social and political changes consequent thereon. It seeks to
promote these by the general dissemination of knowledge as to
the relation between the individual and society in its economic,
ethical, and political aspects.

The Society welcomes as members any persons, men or
women, who desire to promote the growth of Socialist opinion
and to hasten the enactment of Socialist measures, and it exacts
from its members no pledge except a declaration that they are
Socialists.

The Society is largely occupied in the endeavour to discover
in what way the principles of Socialism can be applied both to
the political problems which from time to time come up for
settlement, and to those problems of the future which are as yet
rather political theory than actual politics. It holds fortnightly
meetings for the discussion of papers on such subjects by members
and others, some of which are published as Fabian Tracts.
The Society includes : —
I. Members, who must sign the Basis and be elected by the Com-
mittee. Their subscription is not fixed ; each is expected to
pay according to his means. They control the Society through
their Executive Committee and at business meetings.
II. Associates, who sign a form expressing general sympathy with
the objects of the Society, and pay not less than los. a year.
They can attend all except specially private meetings, but have
no control over the Society and its policy.
III. Subscribers, who must pay at least 5s. a year, and can attend
the lectures.

The monthly paper, Fabian News, and the Fabian Tracts are
sent as published to all three classes.

Lists of Publications, Annual Report, Form of Application
as Member or Associate, and any other information can be
obtained on application, personally, or by letter, of
The Secretary of the Fabian Society,

3 Clement's Inn, Strand,

London, W.C.



THE COMMONSENSE OF
MUNICIPAL TRADING



BY

BERNARD SHAW
WITH NEW 8-PAGE PREFACE



NEW YORK

JOHN LANE COMPANY

MCMXI



1. The Commercial Successes of

Municipal Trading . . i

2. Municipal Management . . 9

3. When Municipal Trading does

not pay . . . .12

4. The Anti - Social Reactions of

Commercial Enterprise . . 17

5. The Beneficial Reactions of Com-

mercial Enterprise . . 34

6. Commercial and Municipal Prices 43

7. Difficulties of Municipal Trad-

ing — -Electrical Enterprise . ^^

8. Difficulties of Municipal Trad-

ing — Housing ... 66

9. The Municipal Audit . . 79

10. The Municipal Revenue . . 89

11. Our Municipal Councillors . 103

1 2. Conclusion . . . .115



HB
443/
S53<L
nil



PREFACE TO
THE FABIAN EDITION

In handing over this edition to the Fabian Society
to be distributed at a price which will make it
easy for those most concerned to buy a copy, I
do not find it necessary to add any new matter
or withdraw any old. The ordinary electioneering
opponents of municipal trading have for the
most part left my book alone, having neither the
economic knowledge, the practical experience of
municipal work, nor the literary skill to cope
with me. But they still persuade the public that
trading municipalities are staggering towards
bankruptcy under a burden of ever-increasing
debt. The trick is simple : instead of calling the
funds of the municipality its capital, you call it
" municipal debt," and go on to contend that the
success of the municipalities in serving the public
at cost price and eliminating idle shareholders,
means that they are less capable and businesslike

V

431715



vi Municipal Trading

than the commercial concerns which measure their
soundness by the excess of their charges over
their expenses, and by the resultant magnitude of
their dividends.

But the opponents of municipal trading could
not, when this book was first published, get over
the unanswerable fact that in spite of all their
denunciations of our municipalities as bankrupt
and mismanaged concerns — denunciations which
would have ruined even the soundest private
businesses, but against which private businesses
have a remedy (witness the enormous damages
obtained by " the Soap Trust " against a popular
newspaper which can slander municipal trading
with complete impunity) — municipal credit, as
shewn by the prices of its stock, remained
unshaken ; and the very people who were declar-
ing it to be worthless were glad to invest their
own money in municipal stock at gilt-edged
prices. They now, however, point out triumph-
antly that the price of municipal stock has fallen,
and that the London County Council can no
longer get as much money as it wants at 3 per
cent. In reply, I can only say that a con-
troversialist who is desperate enough to claim
that this is the result of a loss of confidence in
municipal security is desperate enough for any-
thing. The credit of our municipalities is as
high as ever it was. What has really happened
is that the value of money has risen since the



Preface to Fabian Edition vii

South African War. Consols have flillen from above
par to nearly eighty. The bank rate has touched
seven. The Anti-Municipalizers forget that if they
wish to claim a fall in the price of municipal stock
as evidence that their campaign against English
civic activity is producing some effect, they must
point, not to a general fall in prices which has hit
private enterprises much harder than public enter-
prises, but to a fall confined to municipal stocks
and unaccompanied by a rise in the price of
money. It is no use triumphing over the diffi-
culties of the Borough Treasurer when the Chan-
cellor of the Exchequer and the Rothschilds are
in the same straits. The argument would not be
worth mentioning but that it illustrates the amaz-
ing ineptitude and ignorance with which the
question is discussed in the daily press.

Perhaps the stupidest cry that has been raised
in the Anti-Municipal agitation — which is really
an agitation to reserve all public services for the
profit of private individuals — is the cry for " a
commercial audit." I venture to believe that no
honorable and sensible man who will take the
trouble to read these pages will ever again dis-
grace himself by echoing that cry, or by casting a
vote for any person capable of such an elementary
blunder. Those who did so at the last municipal
elections are now sufficiently ashamed of them-
selves ; and we hear nothing more of the gentle-
men who think a reduction of the death rate a



viii Municipal Trading

commercial mistake because it does not shew a
profit of lo per cent in cash, as it would have
to do before a contractor would undertake it.
But we must face the fact that honorable, sensible,
and ordinarily intelligent people, from thought-
lessness, ignorance, and the tyranny of commercial
habit, do make these blunders, and, as voters,
become the tools of the moneyed interests which
see in every extension of municipal activity the
closing to them of some field which has been to
them a veritable Tom Tiddler's ground on which
they have been picking up gold and silver at the
expense of the ratepayers for years past.

It is generally assumed that the result of the
municipal elections of 1907 was a severe set-back
for municipal trading. The causes of that set-
back, in so far as they had produced a genuine
revolt of the ratepayer against municipal activity,
are explained in this book. Before the revolt
occurred I pointed out that our system of rating,
and the success with which the cost of our social
ameliorations was being evaded by the property
owners and by the working classes, and thrown
on the struggling mass of middle-class ratepayers,
was producing intolerable injustice. The remedy
proposed — that of putting back the clock — was
impracticable. I knew, and everybody who had
ever served on a public body knew, that the first
hour spent on a committee would knock out of
the new representatives most of the nonsense



Preface to Fabian Edition ix

they had been talking at their election meetings,
and that the most intelligent and disinterested of
them would presently become ardent municipal-
izers. But it is still true that until municipal
finance is radically reformed, and constitutional
machinery provided for public enterprises extend-
ing over much larger areas than those marked out
by our present obsolete and obstructive municipal
boundaries, we shall continue to have ratepayers'
revolts, and crippled public enterprise.

In London the issue was so confused with the
usual political party considerations that hardly any
one noticed that the clean sweep which was sup-
posed to have been made of Municipal Socialists
was really a clean sweep of those Liberals who had
been the most determined opponents of the Muni-
cipal Socialists in the previous Council. It was
these Anti-Socialists who were swept away, whilst
the professed Fabian Socialists held their seats in
the midst of the debacle. I mention this for
the sake of its lesson, which is, that the
ratepayers must not put their trust in election-
eering literature which proceeds on the wildly
erroneous assumption that every Liberal is a
Socialist and every Conservative an opponent of
State or Municipal activity. There is no salvation
for the voter except in understanding exactly what
the municipalities are doing ; and this book is
intended to put him in that position as far as a
book can supply the need of that actual first-hand



X Municipal Trading

experience of the working of municipalities which
only very few of us can obtain, and without
which I certainly should not have been able,
merely as a man of letters, to make my book of
any value.

In conclusion, I again warn the ratepayer who
is gasping for breath under the pressure of the
propertied class squeezing rents from him from
above, and the working class squeezing education,
housing, medical attendance, poor relief, and
old age pensions from him from below, that
his condition will become more and more pre-
carious, no matter whether he votes Moderate
or Progressive, until he takes his public business
as seriously and unromantically as his private
business, and resorts to the simple and obvious
means of relieving and protecting himself that
may be gathered from these pages.

Two new developments of the opposition to
civic enterprise have occurred lately. One is the
practice of circulating to the ratepayers statements
implying that municipal trading and taxation of
unearned incomes involve irreligion and licentious-
ness. This I need not deal with : it is only too
obvious that the irreligion and licentiousness in
which we are already steeped are the result of
abandoning our people to the unscrupulous rapacity
of commercial enterprise, which makes huge profits
out of the evils our municipalities strive constantly
to suppress. No municipality has yet taken or



Preface to Fabian Edition xi

proposed to take a single step against religion or
morals, whereas private enterprise openly and
shamelessly exploits poverty, vice, and irreligion
for its own profit to the despair of the ratepayer,
who has to pay for dealing with all the disease,
the crime, and the depravation of character that
enriches the sweater, the distiller, and the brothel-
keeper.

The other development is the offer of Tariff
Reform as a means of relieving the ratepayer
without recourse to Municipal Socialism. On
this I have only to say that if Tariff Reform
succeeds in suppressing manufactured imports and
substituting home production (its original object),
it will not be a source of revenue at all. If,
however, importation continues, and a revenue is
derived from taxing imports, the ratepayer has no
security that this revenue will be applied to his
relief by increasing our present Grants in Aid by
the central government to the local authority
rather than to reducing the income-tax on un-
earned incomes, in which case, he would be paying
more for imported goods only to see the excess
pocketed by the very people who already exact
so large a share of his earnings as rent. So, as
municipal trading is not an evil to be staved off
by any possible means, but a highly desirable and
beneficial extension of civilization, equally good
for Free Trade and Protectionist countries, there
is no reason whatever why the most ardent Tariff



xii Municipal Trading

Reformer should not also be an ardent Municipal
Socialist.

Perhaps the most impudent of the recent
complaints of municipal trading is that it drives
capital out of the country. It is almost the
only sure means of keeping it at home. The
present system, which sends English capital to
develop Bahia Blanca whilst leaving Birmingham
to wallow in its own death-rate, is driving capital
abroad as fast as it will go. Municipal trading,
if it had nothing more to recommend it than its
effect in making home investment compulsory,
would be justified by that alone from the patriotic
point of view.

G. B. S.

AyoT St. Lawrence,
l^th January, 1908.



I

THE COMMERCIAL SUCCESSES OF
MUNICIPAL TRAOING .

Municipal Trading seems, a very , si in pie anatter-
of business. Yet it is conceivable by a sensible man
that the political struggle over it may come nearer
to a civil war than any issue raised in England
since the Reform Bill of 1832. It will certainly
not be decided by argument alone. Private pro-
perty will not yield its most fertile provinces
to the logic of Socialism ; nor will the sweated
laborer or the rackrented and rackrated city shop-
keeper or professional man refrain, on abstract
Individualist grounds, from an obvious way of
lightening his burden. The situation is as yet so
little developed that until the other day few quarter
columns in the newspaper attracted less attention
than the occasional one headed Municipal Trading;
but the heading has lately changed in the Times to
Municipal Socialism ; and this, in fact, is what is

B



2 Municipal Trading

really on foot among us under the name of Pro-
gressivism.

At first sight the case in favor of Municipal
Trading seems overwhelming. Take the case of a
shopkeeper consuming a great deal of gas or elec-
tric light for the attractive display of his wares, or
a factory owner with hundreds of work benches to
illuminate. For all this light he has to pay the cost
of production plus interest on capital at the rate
necessary to induce private investors to form ordin-
ary commercial gas or electric light companies, which
are managed-V7:t-h the object of keeping the rate of
interest, up instead o^ down : all improvement in
the service "and reductions in price (if any) being
introduced with the sole aim of making the excess
of revenue over cost as large as possible.

Now the shopkeeper in his corporate capacity
as citizen-constituent of the local governing body
can raise as much capital as he likes at less than
four per cent. It is much easier to stagger consols
than to discredit municipal stock. Take the case
of the London County Council. For ten years past
the whole weight of the Government and the news-
papers which support it has been thrown against
the credit of the Council. A late prime minister
denounced it in such terms that, to save his face,
his party was forced to turn all the vestries into
rival councils on the " divide and govern " prin-
ciple. The name of the London County Council
has been made a hissing among all who take their



Commercial Successes 3

politics from the Court and the Conservative
papers. To such a torrent of denunciation a private
company would have succumbed helplessly : the
results of an attempt to issue fresh stock would
not have paid the printer's bill. But the County
Council has only to hold up its finger to have
millions heaped on it at less than four per cent. It
has to make special arrangements to allow small
investors a chance. The very people who have
been denouncing its capital as "municipal indebted-
ness " struggle for the stock without the slightest
regard to their paper demonstrations of the ap-
proaching collapse of all our municipal corpora-
tions under a mountain of debt, and of the
inevitable bankruptcy of New Zealand and the
Australasian colonies generally through industrial
democracy. The investor prefers the corporation
with the largest municipal debt exactly as he
prefers the insurance company with the largest
capital. And he is quite right. Municipal expendi-
ture in trading is productive expenditure : its debts
are only the capital with which it operates. And
that is why it never has any difficulty in raising
that capital. Sultans and South American Repub-
lics may beg round the world in vain ; chancellors
may have to issue national stock at a discount ;
but a Borough Treasurer simply names a figure
and gets it at par.

This is the central commercial fact of the whole
question. The shopkeeper, by municipal trading, can



4 Municipal Trading

get his light for the current cost of production plus
a rate of interest which includes no insurance against
risk of loss, because the security, in spite of all
theoretical demonstrations to the contrary, is treated
by the investing pubHc and by the law of trustee-
ship as practically perfect. Any profit that may arise
through accidental overcharge returns to the rate-
payer in relief of rates or in public service of some
kind.

The moment this economic situation is grasped,
the successes of municipal trading become intellig-
ible ; and the entreaties of commercial joint stock
organization to be protected against the competition
of municipal joint stock organization become as
negligible as the plea of the small shopkeeper to be
protected against the competition of the Civil Service
or Army and Navy Stores. Shew the most bitterly
Moderate ratepayer a municipal lighting bill at six-
pence a thousand feet or a penny a unit cheaper than
the private company charges him, and he is a con-
verted man as far as gas or electric light is concerned.
And until commercial companies can raise capital at
lower rates than the City Accountant or the Borough
Treasurer, and can find shareholders either offering
their dividends to relieve the rates or jealously de-
termining to reduce the price of light to a minimum
lest they should be paying a share of their neigh-
bors' rates in their lighting bills, it will always be
possible for a municipality of average capacity to
underbid a commercial company.



Commercial Successes 5

Here, then, is the explanation of the popularity
and antiquity of municipal trading. As far as their
legal powers have gone, municipalities have always
traded, and will always trade, to the utmost limits
of the business capacity and public spirit of their
members.

No doubt a body of timid and incapable coun-
cillors will leave as many public services as possible
to commercial enterprise, just as, in their private
concerns, they keep small shops in a small way in-
stead of becoming Whiteleys and Wannamakers,
Morgans and Carnegies. And a body of rich and
commercially able councillors may pursue exactly
the same policy because they hold shares in the
commercial enterprises which municipal enterprise
would supplant, and have in fact deliberately taken
the trouble to get elected for the purpose of pro-
tecting their private enterprises against the " unfair "
(meaning the irresistible) competition of the muni-
cipality. Further, a body of amateur doctrinaires
who rush into municipal trading on principle with-
out enough business training and experience either
to manage the business themselves or allow their
staff to do it for them, will make a mess of it at
first, precisely as that much commoner object the
amateur joint stock company makes a mess of it.
There is no magic in the ordeal of popular election
to change narrow minds into wide ones, cowards
into commanders, private ambition into civic patri-
otism, or crankiness into common sense. But still



6 Municipal Trading

less is there any tendency to reverse the operation ;
for the narrowest fool, the vulgarest adventurer, the
most impossible fanatic, gets socially educated by
public life and committee work to a degree never
reached in private life, or even in private commerce.
The moment public spirit and business capacity
meet on a municipality you get an irresistible de-
velopment of municipal activity. Operations in land
like those effected by the Corporation of Birming-
ham in Mr. Chamberlain's time, and by the London
County Council in our own, are taken in hand ;
and the town supplies of water, of light, of tram-
ways, and even of dwellings, are conquered from
competitive commerce by civic co-operation. And
there is no arguing with the practical results. You
take a man who has just paid a halfpenny for a ride
in a municipal tramcar which under commercial
management would have cost him a penny or two-
pence ; and you undertake to go into the corpora-
tion accounts with him and prove that under a
"fair" system of book-keeping he should have paid
fourpence. You explain to the working man voter
how true economy demands that his relative who
is employed as a driver and conductor in the muni-
cipal service for ten hours a day, and six days a
week, with standard wages and a uniform, should
go back to competition wages, seventeen hours,
seven days, and his own seedy overcoat and muffler.
You buttonhole the shopkeeper who has just paid
two and threepence per thousand cubic feet for his



Commercial Successes 7

gas, with the public lighting rate and a bonus thrown
in ; and you assure him that unless he votes for a
return to the supremacy of the commercial company
at three shilhngs per thousand and a reimposition
of the Lighting Rate, the city will be bankrupt and
the Mayor replaced by a Man in Possession, You
unfold a Union Jack in London, and tell the care-
worn cockney, who pays for his water to a private
company more than double what his neighbor
across the border pays to the Croydon Corporation,
that the Empire stands or falls with the practice of
buying water at a price which varies inversely with
the quantity consumed, with the right of a water
shareholder to a vote in every constituency through
which one of his pipes runs, and with the main-
tenance, free of Probate Duty, of a monopoly granted
by James I., and by this time appreciated by looo
per cent in value. It is all pathetically useless. The
municipal trader does not contradict you : he laughs
at you. So long as the municipal market is the
cheapest market, the public will buy in it ; and the
protests of the companies are as futile as the protest
of the stationer and the apothecary against the
stores.

It is not necessary to overload these pages by
quoting, from the Municipal Year Book, examples
of successful municipal trading in verification of the
above. Progressive electioneering literature teems
with such examples. The tracts of the Fabian
Society and of the London Reform Union, the



8 Municipal Trading

columns of the Progressive papers, the protests
against " municipal indebtedness " in the Anti-Pro-
gressive papers, the annual reports of the local
authorities, the weekly papers devoted to municipal
matters with their endless photographs and figures,
the handbooks of municipal socialism compiled by
such papers as the Clarion from its own columns,
and the County Council returns and parliamentary
reports on municipal trading, have so surfeited the
public with the facts that a recapitulation here would
be beyond human endurance. It is waste of time to
force an open door ; and in all public services in
which the determining commercial factor is practi-
cally unlimited command of cheap capital combined
with indifference to dividend, the door is more than
wide open : it has been carried clean off its hinges
by the victorious rush of municipal socialism under
the reassuring name of Progressivism.



II

MUNICIPAL MANAGEMENT

The importance of management as a factor in
industrial success cannot easily be exaggerated ;


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Online LibraryBernard ShawThe commonsense of municipal trading → online text (page 1 of 8)