ADMINISTRATION STOUTLY DEFENDED.

Otago Witness, Issue 2814, 19 February 1908, Page 37

ADMINISTRATION STOUTLY DEFENDED.

CAMBRIDGE, February 16.

Interviewed upon the subject of the criticisms on New Zealand railway administration made recently by Mr Samuel Vaile and Professor J. E. M. Rossignol, as a result of which a report was presented recently to the, Auckland Chamber of Commerce from its Executive Committee, Sir Joseph Ward made an important statement, in which he (the Prime Minister) said that it had been one of the extraordinary and painful sides to the criticism of the State railways in this country for some years past that the political opponents of the administration in power had tried by almost every conceivable means to discredit the position and the value of our railwajs. In reference to Professor Le Ro«signoi"s article on New Zealand railways, Mr Vale has pointedly referred to the article in various typical letters to the press. Apparently he is gratified to find himself in what he regards good company on railway finance. I should not bo surprised to find that the criticism of the Auckland Chamber of Commerce has been actuated by Mr Vaile, who, a few years ago, unsuccessfully endeavoured to influence the Wellington Chamber. Le Rossignol's statistics, like ■his conclusions, are based on wrong premises, and show conclusively that his grasp of the position of railway matters in New Zealand is most superficial in character. His deductions are, therefore, erroneous and misleading. In the first place he takes the capital cost of the opened and unopened lines, which it should be lemembcred includes the whole of the expenditure made over a series of years under the head "Additions to Open Lines," and totally ignoring the fact, he deducts from the net earnings of each year the e\pendiTiue on account of " Additions to Open Lines " for that year, and thus arrives at what he terms " the true net profit on working." This method reduces his figures to an utter absurdity. It resembles closely ihe Vaile method of arriving at results of working railways which have so ofttn been s-hown to be fallacious. The effect of the method is strikingly shown by the following. In his table for 1897 the professor gives the capital cost of our railways as £16,534,980, which includes unopened lines and all additions to open lines, expenditure to 31st March, 1897, inclusive. He then deducts the sum of £64,717 on account of additions to open lines for that year from the net earnings, and thus arrives at the percentage of earnings to capital at 2.62. If the professor intended to deduct the amount spent on additions to open lines from the not profit on working, •it is obvious that he should in common (fairness have first reduced the capital cost by the same amount before attempting to arrive at what he terms "the true rfefc sK)£t." Moreover, as the additions to open

lines expenditure is cumulative year by year, it follows that each year the deduction that should be made from the capital, under the prolcisor's sjstcm, be greater. The professor has entirely failed to grasp this fact. For 1899 the capital cost (£17,180,957) shown by the professor includes £401, 350 of expenditure on addtions to open lines, yet the professor deducts from the net carnincs of the railways for that year the sum "of £179.932 that had been spent during the year on additions to open lines and already included in the capital This is equivalent to making a double charge of £581,303 against the railways. For 1903 the capital is shown as £20,214,900, this includes £2,145,924 of money spent on addif to open lines. Yet the Professor again deducts fiom the net revenue the sum of £423,167. which le presented the expenditure on additions to open lines for that year, and was included in the capital cost. He is thus enabled to arrive at what he terms " the true net profit " of 1.01 per cent. Had he made a proper deduction from the capital cost, and then followed his own method, " the true position would have been found to be 1.12 per cent, instead of 1.01. In ISO 6 tiio capital cost is shown as £24,092.085. This includes £3,122,478 spent on additions to open lines, yet the professor, ignoring this, deducts £353,025 (additions to open lines expenditure) which is also included in the capital coat, from the net earnings shown in the railway report, and thus arrives at the conclusion that, " the true net profit " is 1.56 per cent. In this instance, had he made a proper deduction from the capital by h:e own method the percentage would have been 1.79 per cent. The net result of the professor's methods has been to reduce the net earnings of the line by £3,122,478, and although contending that the additions to open lines should be a charge to revenue, he has omitted to make any deducfon whatever from the capital cost of opened and unopened lines, thus destroying the whole basis of his calculations and rendering his work valueless from the outset and his facts and figures inaccurate and misleading. It is difficult to understand how the professor arrived at the conclusion that it was a fair thing to debit the working railways with the amount in suspense and unopened lines, and expect the opened lines to pay interest on the money so invested. ■Such a system is not followed by any raiLway or other financial institution, and no return from capital outlay is ever expected until such time as the concern is completed and in working order. The capital cost of unopened lines, which is included in the professor's table, was in 1697, £957,588, in 1899, £786,891; in 1903, £1,133,200; in 1906, £1,593,113. The inclusion of Jaet year was equivalent to deducting £47,793 fiom the net earnings of the working railwa3 - s to pay the interest on the capital cost of unopened lines. Applying Professor Le Ro.ssignol's peculiar method to the capital invested in the opened lines, what he calls "the true percentage" would be:- — In 1897. 2.79 v in6tead of 2.62, as shown by him; for 1899, 2.5 instead of 2.11; for 1903, 1.19 instead of 1.01; for 1906, 1.93 instead of 1.56. When the professor was in Wellington he was, upon his own -inquiry, personally informed that the policy initiated by the Government in 1895 was that the railways should only be expected to give a net return of 3 per cent, on the capital invested therein, and that whenever the net earnings exceed the 3 per cent, the Government had decided to give back to the users of the lines by way of concessions in fares and freights the excels earnings over 3 per cent. ; that in this way a very laree amount of money had been returned to the public, but notwithstanding this the railways year by year gave a net return of over the 3 percent, expected from them. It was made quite clear to him that the Government laid it down as the main plank in its policy of railway management that a progressive policy bhould be adopted and the lines regarded as adjuncts to the settlement of the. Dominion, the earning of a large profit beinp looked upon as of minor importance when compared with the incalculable benefits that accrued to the State by giving- the settlers a convenient and cheap means of transporting- the product of their farm 6to the market and oiu business people low rates. To assist in enabling the people in the interior to ha\e the benefit of merchandise and their lequisites for working their lands and businesses, as the case may be, at the lowest possible cost, and also to the mass of the people, a very large concession in railway farce was made to give them an opportunity of travellins to and from the towns as cheaply as possible. No sane person could deny that this policy had enormously helped the development of the countiy, our trading concerns, and every class of people throughout the Dominion. Professor Le Rossignol's assumption that there has been a lo?s of £4.380.147 on the railways during the last 10 years is entirely erroneous. It is manifestly wroni for the professor to include the * £3.122.478 in the capital cost of the lines and compute the interest on that sum. and at the same time deduct the additions to opon lines expenditure from the net profit of working-. Having left the amount in the capital, it may fairly be assumed that the professor was satisfied the practice of including the "additions to opon lines " expenditure in the capital was correct and sound in principle. Clearly, therefore, ho has erred in deducting £3,122.478 from the net earnings. Thf net lo^s shown by him must therefore be i educed by thr* £3.122.478 additions to open lines expenditure which ho has wrongfully deducted from the working expenses. This leaves a difference of £1,257,699 required, acrordins; to the professor's showing, to bring the interest on the capital cost of the railways up to the full 3.75 per cent., which he contends they should earn. The concessions given to the public in the matter of fares and freights amounts to £850,000, and the -value of the increased train services to £883,000. The-=e concessions, representing money the Government has returned to the user* of tlie railways, jointly total £1,733.000, or £475,000 in excess of the amount that would have been required to pay 3| per cent, interest, which the professor assumes to be the average rate paid for the capital invested. This take 3no account of the concessions in pay siven to the railway staff, which amounted to another £375,000. Professor Le Rossignol's line of argument is that the railways should earn the full amount of interest, and that the value of the lines as adjuncts to settlement should not be taken into consideration, and, in fact, that the policy of being satisfied with a net return of 3 per cent, from the railways and giving the people of the Dominion as concessions in fares and freights the surplus over 3 per cent, is wrong in

principle and that what should be done is to work the railways as a meie revenueearning machine. The net profit on working to "which reference is mae'e is shonn clearly in the Railway Statement as being the difference between revenue and expenditure, which is available for interest purposes. The figures shown in railway leports and copied into Professor Le Rcssignol's table give the true results of working the railways, and show that in no instance have our railways given a return of less than 3 por cent., even when the capital cost of the unopened lines has been included. _ With regard to the question of what items should or should not be charged to additions to open lines, the practice followed by the department is perfectly sound in principle, and is, moreover, in accord with the practice in operation in other States. It has been fully discussed at various times, and has received the concurrence of such men as Mr F. Matheson (late Chief Commissioner Victorian Railways and afterwards genera-I manager of the Midland Railway. England), Mr Charles Olliver (Chief Commissioner, New South Wales railways), Mr David Kirkcaldie (of the same lino). Mr Pendleton (Chief Commissioner, South Australia), Mr Shallon (Commissioner in Queensland), Mv John Davis (geneial manager, Western Australian railways, now holding a prominent position on the Midland Railways, England). The following figures show the cost per mile of maintenance for the past six years of the New Zealand and Australian railways, and also of sonic of the principal leading railwa\s m America, Canada, and the United Kingdom: —

Year 1901.— New Zealand £IS6, Victoria £156, Nftw South Wales £148. Queensland £120, South Australia £97, West Australia £135, Tasmania £126, Cape £173, Natal £173. United Kingdom £275. Canadian Pacific £111. Canadian Grand Trunk £186, Baltimore-Ohio £355.

1902 —New Zealand £196, Victoria £161, New South Wales £174, Queensland £143, South Australia £108, West Australia £163, Tasmania £132, Cape £200, Natal £265, United Kingdom £281. Canadian Pacific £149, Canadian Grank Trunk £204, Balti-more-Oh'o £373.

1903.— New Zealand £204. Victoria £154, New South Wales £179. Queensland £124, South Australia £104, West Australia £149, Tasmania £130, Cape £289, Natal £277, United Kingdom £284. Canadian Pacific£l49, Canadian Grand Trunk £225, Balti-more-Ohio £314.

1904.— New Zealand £213. Victoria £158, New South Wales £160. Queensland £105, South Australia £78, West Australia £162, Tasmania £125, Cape £371, Natal £256, United Kingdom £283. Canadian Pacific £174, Canadian Grand Trunk £235, Balti-more-Ohio £341.

1905.- New Zealand £217. Victoria £162, New South Wales £163. Queensland i 12, South Austra ia £91. Western Ausrriilj. £154, Tasmania £111, O<pc £407, Nar.tl £239, U.K. £283. Canadian-Pacific £176, Grand Trunk £234. Baltimore-Ohio 1906.— New Zealand £229. Victoria £]i«. New South Wales £149, Queensland £91, South Australia £113, Western Australia £203, Tasmania £116. Cape not available, Natal £287, U.K. £287. Canadian-Pa c fie £199, Grand Trunk £253, Baltimore-Ohio £463.

The operating expenses of the BaitirmreOhio railway increased by no lesa thai. £108 per mile during the period 1901 to 1906, and that notwithstanding the fact that he length of line was increased by over 800 miles. During the =ame period the cost of operating a mile of railway on the New York Central and Hudson River railway, a system consisting of 3784- miles, was iv 1901 £2537, the percentage of expenses to earnings being 64.12; in 1902 £2C232 C 23 per mile, percentage 66.09; in 1903, £3124 per mile, percentage 68.69; in 1905, £3285 per mile, percentage 71.43 ; in 1906. £3502 per mile, percentage 71.96. The net earnings on New York Central decreased £182 per mile between 1902 and 1906, although the length of line open increased 464- miles. St. Louis railway (1275 miles) : 1901—Opprating 1 expenses per mile £726, percentage 62.72; 1906— Operating- expenses £922, percentage 74.52. Atchison-Santa Fe 6ystem (8434 miles) : 1901 — Operating- expenses £826 per mile, percentage 59.23; 1902 — Operating expenses £863, percentage 57.34; 1906 — Operating expenses £1150, percentage 62.14. The operating expenses of this line increased lnrgelv in the period stated, notwithstanding the increase in length of line. This feature is observable in all the other lines in America, and, as shown above, similar results attend the operation of the railways in the United Kingdom, and in most of the Australian States. The addition in the cost of operating railways arises from the advance in the pries of material and the great improvements that ha\e been made in wages and hours of employee-* generally, and in no country in the world is this improvement more pronounced than in connection with the railway system of this Dominion. Notwithstanding the i eduction in fares and freights and the increase in the wages and shortening of hours of emplo\ees. the railway statements that ha\e been piesented to Parl'ament during the last 13 years show in the clearest manner possible the satisfactory results that have been achieved in working the New Zealand railways since the Go\ eminent resumed the control.

So much then, continued Sir Joseph, for the reliability of Professor Ro-jsisjnol. With criticism from the financial standpoint it would, ho admitted, be thought that a professed authority ■who made a mistake amounting to £3.122.478 in a ciitieitm of the financial position of our railways, even though he be quoted by the Auckland Chamber of Commerce and supported by Mr Samuel Vaile. could not by that portion of the count ly who were deeply interested in the welfare of our railways be taken very serioush . So far as the policy of the country was concerned, which the Government had laid down definitely in regard to our railways — nanielj , that of returning to the users of the lailways all earnings over 3 per cent., was a clear cut i-sup, which the Government must accept, and with full responsibility. The value of the concessions to the users of our railways was incalculable, even beyond the actual amounts which had been conceded to them. It would be the easiest thing in the world to make the State railways of New Zealand produce large dividends. There was no reason why 10 per cent, could not be taken out : but would it be a wise' course to follow? No doubt Professor Rossignol's opinion or judgment upon such a matter would be regarded by those who were anxious to adversely criticise the opening- up and development of the country, and the carrying on of the scores of the industries both in town and country by means of cheap railway freight's and facilities, as an argument to

condemn the railway policy of the country. Quite irrespective of Professor Rossignol's opinion this country would, for at least many years, go on utilising its railways as the great engine to help and promote the general interests of ihe people both in town and country. But as the executive of the Auckland Chamber of Commerce had stepped in and taken skies with both Professor Rossignol and Mr Vaile upon contentions which were both fallacious and incorrect, he would suggest to them that thoy should submit proposals for increased rates upon, say, merchandise to produce an additional £150,000 a year by increasing the rates. Doubtless in their magnanimity and their desire for a railway policy of their own to bo established, they would readily consent to single their soocial interests out so as to produce the additional £150,000, of course with the assurance that they would not raise their prices to the retailer and the consumer. One thing was perfectly certain : the Government would not raise rates to the farmers and producers, or to those engaged in industries which were giving large employment, or for the conveyance of passengers over our lines. Some of the other criticisms made regarding our radwaye. the Prime Minister continued, were so absolutely misleading and incorrect that they were' hardly worthy of serious consideration on the part of -any well-wisher of oar country.