D.—2.

Another aspect of the same problem is the view, which has also been expressed to the Board on more than one occasion, that the introduction of competitive forms of transport has lessened transport costs. The Board does not consider that this proposition will bear examination. This view could be valid only if the cost of transporting the goods that are left to the railway could be reduced by a greater amount than the cost of providing the new form of transport, so that the total cost of producing all the transport, when viewed from the community point of view, was less than it was before the introduction of the competitive form. An examination of the available statistical data shows that this is not the case. This is largely due to the peculiar nature of the transport industry. When money is spent in the provision of a transport plant what is really produced is capacity, and the plant only operates at its greatest economic efficiency when all the capacity is used, When the plant that has been provided is not used to full capacity it is possible only to a comparatively small degree to reduce costs and the unused capacity has to be paid for. Unused capacity is simply waste, and that waste shows up in a practical way in the form of the frequent insolvencies of road-transport concerns and larger railway deficits, neither of which are good from a community point of view, not only because they are undesirable in themselves, but also because they lead to the inequitable position that the increased burden of the transport cost falls on the non-user. It has been suggested that the method of adjusting the railway plant so as to reduce the portion of unused capacity should be adopted. A particular form of this suggestion is the contention that is advanced from time to time that some of the branch lines should be closed. The Board has, however, in this connection encountered at least two difficulties which make it very undesirable that any hasty decision should be made. The first difficulty is the wholly uneconomic nature of much of the competition with which the railways find themselves faced. In the case of competition by road especially, it is found that many operators are working on a basis that can give them no permanency. The Board finds that this process has been going on for some years. It was thought that it would right itself, but unfortunately the supply of persons who are prepared to operate under these conditions appears to be inexhaustible, and, as already mentioned, the depression with its accompanying unemployment is forcing many to undertake transport work under conditions that cannot but jeopardize the stability of the transport industry. The second difficulty is that it is almost invariably the case that the competitive form of transport cannot cover the whole field of the transport requirements at as low a cost when considered in relation to the whole field as the railways are able to do. The unfortunate part from the Dominion point of view is that if the railway ceased to function, that portion of the field would be adversely affected which most nearly touches the Dominion's production. The Board has had reason to conclude that in some cases one form of transport such as the railways could cope quite well with the needs of the district and at a reasonable average rate, so that the provision of more than one means of transport is simply a waste. The question that arises is which form of transport should operate. The Board has felt that if this question could be considered and decided in a positive way instead of in a more negative way, such as is involved in a decision by the Railways Board that a branch line shall be closed, then a sounder decision could be come to. This aspect has also been touched upon from another point of view in another portion of this report, but the Board mentions it here along with the other difficulty mentioned above as emphasizing the practical impossibility of the Board's formulating, under such conditions, a policy in connection with the railways which it believes would be in the best interests of the Dominion. NEW LINES. The Board duly submitted its report on lines under construction and lines on which construction work had been stopped. In that report the position was fully covered and the subject-matter does not call for further comment in this report, except possibly in regard to the Stratford-Okahukura line. The position in regard to this line was brought under review, but was not included in the Board's report on lines under construction. The wording of the statute is such that the Board is not called upon to report under the section of the statute in pursuance of which its previous report was made unless it desired to recommend that the construction work on the line should be stopped. The Board investigated the position of this line very closely, and after a good deal of anxious consideration it came to the conclusion that, taking account of all the factors involved, the case might be considered as a border-line one. The Board decided, therefore, that, having regard to the advanced stage of the work and the comparatively small expenditure that was required to complete the construction work, the line should be completed. In recording this decision the Board wishes to emphasize that if the policy is adopted of providing the railway as a means of transport for the development of the district that policy should also include a strict avoidance of the waste that would be involved in duplicating the -means of transport by expenditure on roads parallel to the railway or 011 plant to operate over the roads in competition with the railway. Stated in definite terms, the Board desires to say that a decision to complete the railway as a means of transport for the district should imply, for the purposes both of expenditure on roads and the application of the principles of the Transport Act, 1931, that the railway is to be regarded as the means of transport for the district tq the exclusion of competitive services. NAPIER EARTHQUAKE. When the Board assumed control of the Department it found that the services, which had been disorganized by the Napier earthquake had (with the exception of the Napier-Putorino services) been fully restored, and that most of the repair work had been completed or was in hand. The NapierPutorino Section of line calls for some comment. The section of this line from Napier to Eskdale had been opened for some years prior to the earthquake, but the traffic thereover had been very meagre.

VI