The Encyclopedia Americana (1906)/Municipal Ownership

by A. M. Burnham

Municipal Ownership, a term which in its broadest sense might be applied to a city's owning any business, but which in general usage is referred merely to the city's ownership of such public utilities as are natural monopolies. Natural monopolies have been defined as those industries which from some inherent quality inevitably tend to become monopolies; the most important of such industries in municipalities are waterworks, lighting plants, and street-railways. The question of public ownership of these utilities is a recent one, and is the result of the rapid growth of cities, and the increasing need of having water, light and transportation, supplied with efficiency and cheapness to all citizens.

Arguments For and Against Municipal Ownership.

The reasons advanced in favor of municipal ownership are as follows: (1) An increase of the city government's functions is desirable because it makes the public affairs of more importance to the individual citizen, so that he gives them more time and attention and the government of the city does not fall into the hands of a few; also because increased importance and dignity of public services will attract better and more efficient men to the service. (2) The large monopolies which own public franchises are the principal cause of corruption in municipal government, through their attempts to gain and keep franchises, and enlarge their privileges without regard to the public welfare, and to give their functions and privileges to the municipality direct would remove a corrupting influence. (3) A city can float bonds at a lower rate of interest than a private company, and can lower the cost of supply by not seeking to make large profits on watered stock, but by merely paying expenses and interest on bonds. (4) If profit beyond this be made it can be used for lowering the general tax rate, or rates to private consumers can be reduced. (5) Without too greatly increasing costs the city may afford to pay higher wages for shorter hours to employees, and improve the standard of the condition of labor. The argument is further advanced that in the great majority of cases in which municipal ownership has been tried, the results have been very favorable, and that the cases of municipal mismanagement are more than matched by the cases of mismanagement of private industries. Among the most notable and successful examples of municipal ownership is that of the street-railways in Glasgow, Scotland, where the city assumed the operation of all street-railway lines in 1894; in that year the fares were reduced, the mileage was rapidly extended and electricity was substituted for horse-power; the financial success of the city's enterprise is thus briefly summed up in the 1902 report of the department: receipts, $3,052,000; expenses, including allowance for deterioration, $2,015,000; balance, $1,037,000, half of which is credited to the general reserve fund. Another set of statistics indicating advantage in municipal ownership, relate to the gas-plants owned by cities in the United States. In 1901 the average price of gas in private enterprises was $1.04 per 1,000 feet, in public plants $0.92 per 1,000 feet, the public plants having less than half as great an average output; in the same year the public plants made a gross profit of 29.9 cents per 1,000 feet, showing that cheaper rates did not involve failure to meet expenses. The reasons advanced against municipal ownership are as follows: (1) The political corruption of American city governments would involve inefficient officers appointed for political reasons, and consequent mismanagement. (2) If city officials are dishonest in their dealings with corporations, there is no reason to suppose they would be more honorable in their management of public industries and funds. (3) In the desire of the officials to win popular favor, rates to consumers may be reduced below what the city can really afford, and the industry thus made a public burden; or (4) a mistake on the other side may be made with the idea of reducing the general tax rate, and those who are consumers be really taxed for the benefit of those who are not. (5) Municipal management will not be progressive in testing new methods and developing new territory, being fearful of running the risk of failure and heavy expenses which such experiments involve. Opponents of municipal ownership also argue that the cheapness claimed for city operation of industries is more apparent than real; in proof of which they call attention to the fact that in many cities which have undertaken the management of municipal enterprises no provision is made in the accounts for deterioration and wear and tear of machinery and plant, or if such provision is made it is not equal to what many experts have declared sufficient, and that this item of expense will ultimately become a burden to the community. They also cite the case of the gas works of Philadelphia (the largest American city to own its gas plant) where public operation was inefficient and expensive, and a return was made to private management; and claim that this might occur in any city, especially in any large city.

Statistics of Municipal Ownership.

The first publicly owned waterworks in the United States were those of Winchester, Va., built "before 1800"; in 1890, 42.9 per cent of all waterworks in the United States were under municipal ownership; in 1902, 51 per cent were under municipal ownership; in larger cities of over 30,000 inhabitants 88 out of 135 plants were owned by the city; and the proportion of privately owned plants was largest in cities of 5,000 to 30,000 inhabitants. In 1900, of 981 cities of the United States reporting, 21 owned their gas plants (this including Philadelphia, whose plant is leased to a private company till 1927); no city larger than Philadelphia had attempted public ownership; the larger cities with public gas plants are Richmond, Va., Wheeling, W. Va., and Duluth, Wis. In Germany, however, 41 out of 54 of the larger cities own their gas plants, and the smaller cities show a still larger proportion of municipal ownership; municipal plants are also common in Holland, Sweden and Switzerland. Electric lighting plants have come somewhat more generally under municipal ownership in the United States, but few large cities have entered this field; in 1900, out of 135 cities of over 30,000 population only four owned their electric plants; but the proportion is much larger in the smaller cities and towns; of 579 cities of from 3,000 to 5,000 population, 111 reported public ownership of electric lighting plant, and 18 joint ownership. The public ownership of street-railways has made no advance in the United States; in Great Britain many large cities have gained control of their street-railways; prominent among them are Glasgow, Plymouth, Blackpool, Liverpool, Sheffield, Hull, Southampton, Huddersfield and Belfast. On the Continent municipal ownership of street-railways is rare, but increasing. Only one city of the United States owns its street-railways, Grand Junction, Col.; the cable road across Brooklyn Bridge was at one time owned and operated by the city, but was later given over to private management. New York city owns its docks, other cities have municipal boards which have supervision and control of docks, though privately owned, and Boston and a few other cities own the ferries. The question of municipal ownership of local telephone lines has also been considered, and a few municipal telephones are found in Great Britain.

It should be remembered, however, that the total progress of municipal ownership cannot be measured entirely by the proportion of cities owning important industries. Advance has been made along other lines, as for instance the increase of general and special State legislation authorizing the erection and purchase of waterworks and lighting plants, and providing for extra taxation or bond issues for establishing municipal plants; in the cities, too, there has been a growing tendency to limit the franchises in regard to time, with the idea of making municipal ownership possible in the near future. Many public men are giving serious consideration to the subject and the mayors of several important cities have been elected on a municipal owner- ship platform, or have openly favored it, among them may be mentioned the mayors (in 1902) of Toledo, Denver, Cleveland, and Columbus; in the election of 1901 in Saint Louis both parties had a plank favoring municipal ownership. In Chicago, an attempt to extend the franchise 0f street-railways for 50 years was defeated; and the question of municipal ownership of gas and electric plants, and street-railways referred to the people in the aldermanic election of 1902; the result of the vote is interesting as showing the state of public opinion in one of our largest American cities :—of the 213,859 votes cast

170,824 favored city ownership of street railways.

161,365 favored city ownership of gas plant.

157,740 favored city ownership of electric light plant,

Consult: Bemis, 'Municipal Monopolies' (1899); Carey, 'Municipal Ownership of Natural Monopolies' (1900); Fairlie, 'Municipal Administration' (1901); Foote, 'Municipal Pubtic Service Industries;' Francisco, 'Municipalities vs. Private Corporations' (1900); Goodnow, 'Municipal Problems'; Whinery, 'Municipal Public Works'; United States Commissioner of Labor, 'Water, Gas and Electric Light Plants under Private and Municipal Ownership' (1899); and 'Municipal Affairs,' winter number for 1902.

A. M. Burnham, A.B.,

Editorial Staff, 'Encyclopedia Americana,'