Fabian Tract No. 138. 


MUNICIPAL TRADING.. 


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] ULY 1908. 



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MUNICIPAL TRADING. 

MuNICIPAL GovERNMENT aims at improving the conditions of life in 
towns. Such improvement has already been effected to some 
extent and it may and ought to be carried much further. The 
undertakings by which it is accomplished may be divided roughlyinto two kinds: non-revenue producing and revenue producing.
To the first category belong all those services for which no charge is 
made to the consumers as such, the cost being paid by the citizens 
by means of the rates. These are "unprofitable" in the ordinarycommercial sense of the term. For instance, it costs money to 
destroy or disinfect a centre from which fever spreads; and thoughthe ratepayer saves many pounds a year in doctors' bills in his own 
family and gains in the increased working power of his employees, 
he seldom thinks of crediting these gains and savings to the account 
to which he debits his rates. The municipalities themselves cannot 
estimate the savings and profits that result from people being alive 
instead of dead, or well instead of ill, and these items can never be 
brought into any statement of accounts which would satisfy the 
requirements of a "commercial audit." Much the largest part of 
all municipal expenditure is of this nature : paving, lighting and 
cleansing streets, maintaining order, collecting household dirt and 
refuse, housing and feeding destitute persons, educating children, 
making sewers and drains and keeping them in order, providing 
and maintaining parks and open spaces, roads and bridges-areall a general charge upon the community, it having been realized 
that the most satisfactory and often the only possible way of gettingthese things systematically done is by municipal action, and that the 

most convenient method of collecting the cost is not by fees but by 
rates. Expenditure on this work is liable to increase rapidly as soon 
as people realize that it really does not impoverish but enriches the 
community. 

The Growth of Expenditure. 

In the year 1884-5 the local expenditure in England and Wales 
for highways, education, poor relief, police, sewerage, lunacy and 
harbors (all non-revenue producing except the last two items, 
and those only repaying a part of the cost), amounted to about 
£29,300,ooo ; and eighteen years later, in 1902-3, it had increased 
to about £ 44,ooo,ooo : that is to say, by about so per cent.; 
and these amounts include neither sinking funds and interest nor 
miscellaneous expenditure, which had gone up in yet greater proportion. 
The expenditure continues to grow year by year, but is 
not at all too great ; for (apart from humanitarian considerations)
the existence of infirmaries, workhouses and asylums makes life and 


4 


property safer ; and streets, roads, sewerage and harbors, as well as 
the industrial advantage of having a population able to read, write 
and cipher, are worth more than all we spend on them. But what 
is really unsatisfactory is that those who pay the rates are often not 
those who get the greatest benefit from them. A shopkeeper maybe ruined and his family may have to go short of milk or boots 
because the rates on his shop are higher than his profits will bear ; 
and it does not console him to learn that the longevity of the community 
and the value of his landlord's property have greatly increased 
as a result of this municipal expenditure. It has to be admitted, 
therefore, that the present incidence of the rates is grossly unfair, 
and is rapidly becoming intolerable. The ground landlords in 
London, the value of whose land has been manifolded without effort 
on their own part, furnish an obvious instance of people who get 
too much from, and pay too little toward, municipal expenditure.
No public advantage is secured by retaining a system which taxes 
some people unfairly to enrich others unjustly. 

Revenue Producing Undertakings. 
The second category of municipal undertakings, those which 
produce a revenue in fees or charges made for commodities supplied,
constitute what is known as "municipal trading." For these undertakings 
a charge is made to the consumers who directly benefit by 
them, instead of upon the ratepayers at large. They generally yield 
a cash profit besides affording improved social services. It is 
customary to confine the term "municipal trading" to these 
undertakings; but mention has first been made of the non-revenue 
producing work because it is the latter which causes the " high'' 
rates and also a great part of those municipal "debts" often referred 
to as proofs that municipal trading i£ undesirable. The increase 
of rates, taking England and Wales as a whole, is due solely to 
expenditure on non-trading undertakings, of a kind indispensable to 
the very existence of healthy towns. Indeed, as will be seen later, 
municipal trading throughout the country, far from throwing anycharge on the ratepayers, has resulted in a contribution being made 
towards the reduction of rates. As a matter of fact, the municipal 
"debt" of England and Wales, which in March 1905, already amounted 
to over £466,ooo,ooo, is to the extent of nearly £2I I ,ooo,ooo due to 
non-trading undertakings. The balance of over £zss,ooo,ooo is 
really capital in the commercial sense, being invested in enterpriseswhich as a whole produce a cash pro~t or dividend. 
Municipal trading easily pays its way, and could, indeed, be made 
to yield high cash profits were it desirable to do so. By charging as 
much for water, gas, electricity and tram-fares as private companiesdo, cash profits could be made out of municipal trading much largerthan are usually made by private enterprises of a similar nature. 
The reason for not doing this is that the municipalities' aim should be 
not to make cash profits but to serve the public. In fact, it is not 
fair for a municipality to make large profits by charging high prices,
because, as the profits go to the relief of the rates, those people w.ho 


5 


travel often by municipal trams or use much municipal gas, water, or 
electricity, indirectly pay more in that case than their share of the 
cost of governing the town. That is why all municipal services 
ought to be run at, or nearly at, cost price. This is more or less the 
practice in many towns; and thus the opponents of municipal trading 
are able to declare that certain private companies earn larger 
profits than are earned by municipal undertakings. The latter 
charge little more than enough to cover their actual expenses,
including the cost of renewal of plant, buildings, etc., plus interest 
on borrowed capital, and a sinking fund sufficient to repay that 
capital in a certain term of years; and people who do not ask what 
quality of service the public receives, nor at what price, nor how the 
employees are paid and treated, nor what hours they work, are consequently 
sometimes induced to believe that municipal trading 
brings no profit to the community: an opinion which will not stand 
examination. 

As already suggested, many undertakings yielding great advantage 
to the community are of such a nature that private capitalistsmanaging them are unable to secure any considerable profit in the 
form of dividends. In such cases, unless the work is done by a 
municipality, it is generally not done at all. For instance, the 
ultimate advantage to the community of destroying unhealthydwellings in a congested slum, and arranging a fine open space 
where children can play and men and women who have been 
indoors all day can sit or stroll and breathe fresh air in the evening, 
may (by affecting the health and vigor of the population) be very 
great. The improvement may also so alter the aspect of the whole 
neighborhood that rents may go up and landlords may grow rich. 
But a man making the open space as a private speculation and 
trusting to the pennies he could charge for admission, or to the 
conscience-money that grateful landlords might send him, would 
find that he had made a very bad investment. 

So strongly has experience shown that private companies cannot 
be trusted to supply the necessaries of life in good quality, sufficient 
quantity, and at a fair price, that even under a Tory Government 
the powerful vested interests of the water companies of London were 
unable to maintain their independence and were compelled in 1904 
to hand over their long-established businesses to the management of 
the community. This example is being, and will be, followed in 
other places and with reference to other commodities. In fact, 
already in 1902, out of the 317 municipal corporations in Englandand Wales, no less than 299 were carrying on revenue producingundertakings of one kind or another. These undertakings included 
waterworks, gasworks, electricity, tramways and markets, as well as 
baths and washhouses, burial grounds, working-class dwellings, 
harbors, piers, !ind a variety of other businesses. 

It would be easy to select examples of extremely succ~ssful 
municipal enterprises; but it will be fairer and more convincing to 
take the most complete results that have been as yet published for 
several large classes of undertakings. 


6 

Public and Private Enterprise Compared. 

The Board of Trade publishes annually returns of every gasundertaking and every tramway undertaking in the United Kingdom.
The following summaries are prepared from these official figures bythe Mttn£cipal Year Book (see pp. 46I and 472 of the 1908 issue). 

GAS UNDERTAKINGS. 
All Local Authorities 


in U.K. 1905-6. 
Average price charged per I ,ooo ft. 2s. Sid. 
Expenditure (ratio to income) 73'53 
Return on capital ... 6i% 

TRAMWAYS. 

Cost per mile of lines la£d by L. A. 
and Companies respectively 
Return on capital worked by L. A. 
and Companies ... 
Working expenses (ratio to income) 
Average fare per passenger 

All Local Authorities 
in U. K. Year ending 
March 31, 1906. 


8% 

63'08% 

I'08d. 

ELECTRIC LIGHT AND PowER. 

Unfortunately the Board of Trade does not at 

All Companies in 

U.K. 1905-6. 
2S. 8id. 
76'12 
5% 

All Companies in 

U.K. 1905. 
4i% 
66·28% 
1'20d. 

present issue 

returns relating to electnc supply undertakings, and no absolutely 
complete statistics are obtainable. However, the Electr£cal T£mes 
publishes excellent tables relating to all undertakings of which it can 
obtain official statistics. With regard to local authorities its list seems 
fairly complete, the omissions being of no great importance. Its list 
of companies is unfortunately very incomplete. Still, the figures 
are not selected in any way, and probably are a fair sample of the 
whole. The following summaries are taken from the Electr£cal 

T£mes of May 2nd, I9o8, p. 347· 

London Undertakt'ngs. 

12 London Local 
Authorities 1905-6. 
Average price per unit 2'63d. 
Working expenses per unit... 1'28d. 
Gross profit per cent. of capital 5'69 

Provz'ncz'al Undertakz'ngs. 

Average price per unit 
Working expenses per unit... 
Gross profit per cent. of capital 

196 Provincial Local 
Authorities 1905-6. 
2'08d. 
0'99d. 
7'1 5 

13 London 
Companies 1905. 

3'08d. 

r ssd. 

6'53 

70 Provincial 
Companies 1905, 
2'7Id. 
I'47d. 
4'79 


7 


PRICES CHARGED TO THE PUBLIC. 
. It will be noticed that in each one of these public services the 
pnccs charged to the public by local authorities are lower than 
those charged by companies. 

CosTs oF PRoDUCTION. 
It. will also be seen that in each service, without exception, the 
workmg expenses of the public authorities are lower than those of 
the companies. In the case of gas and tramways, the figures in the 
Mum'cipal Year Book do not reveal the full extent of the difference 
in favor of the former. Thus in the case of gas, the average price 
charged by the local authorities is 2s. Sid. per I ,ooo cubic feet, and 
their average expenditure 73'53 per cent. of their income. Now it 
is clear that if they charged the same price as the companies (i.e., 
2s. 8td.) their income would be much higher, and their expenditure 
would therefore be very much less than 73'53 per cent. of that 
income. The same applies to tramways. 

AVERAGE PROFITS. 
It will be noticed also that in each service the average rate of 
profit of the public authorities is higher than that of the companies, 
except in the case of the London electricity undertakings. This 
exception is explained by the fact that in London the companies 
have the best districts and the largest undertakings, and have been 
much longer established. 
1t should be remembered that in addition to the large sums 
which are every year transferred from the profits of public undertakings 
to the relief of the rates, the public makes a large indirect 
profit in consequence of the lower prices charged. This indirect 
profit amounts to several million pounds per annum. 
These figures conclusively disprove the statement so often made 
that municipal trading does not pay, and that it is extravagantlyand wastefully conducted. They prove beyond doubt that at the 
present time public enterprise can and does give a cheaper service 
than private enterprise ; that it is more economically and efficiently 
conducted ; and that it is more profitable.
If private electrical enterprise were to be judged as a whole, 
debiting it with interest and sinking fund on all its wound-up unsuccessful 
companies as well as its successful ones, it would come out 
of the test far worse than in the tables given above. The private 
company, with its limited liability, may simply spend its shareholders' 
money and stop payment when it fails. It may "cut its losses,'' and 
ruin its investors. Whereas every sum borrowed for municipalenterprise must be paid back to the uttermost farthing; and until 
it is paid back the interest on it must be paid punctually, whether 
the enterprise pays its way or not. 

Workmen's Dwellings. 

Some charge on the rates has been incurred over the construction 
of working-class dwellings. According to the Parliamentary Return 


8 

to March 31st, 1902 (the latest authoritative statement available),
capital to the amount of over £I,253,ooo had been expended on 
these, of which about £2o7,ooo had been paid off or balanced bysinking fund. The average yearly income, after paying working 
expenses, was £I6,soo; while the amount required for interest and 
repayment of capital was £ 431)001 so that the contribution from the 
rates was nearly £27 ,ooo a year. 

It must, however, be borne in mind that in the matter of supplying 
workmen's dwellings private enterprise has also failed. The 
overcrowding of the people, both in towns and villages, is the 
greatest scandal of our time. The census Returns show that nearlyone-third of our total population, and in London alone nearlyI,ooo,ooo people, live in an overcrowded condition. Over two hundred 
thousand Londoners are packed in horrible block dwellings, 
nearly half a million live three persons to a room, and thousands 
live in still more crowded conditions. The state of things in manyrural districts is quite as bad. 

The action of the municipality in this matter is almost confined 
by law to insanitary areas and to workmen's dwellings. A privatebuilder is under no such restriction. He can take an order for a 
cathedral and for a potting shed, for a millionaire's house in Park 
Lane and for the cottage of the millionaire's gamekeeper. In the 
intervals between large contracts he can keep his staff and plantemployed on small ones. If he decides to go into the business of 
housing the working classes, he can proceed much more cheaplythan the municipality. Instead of erecting huge blocks of dwellings 
with fireproof floors and all the solidities and sanitary appliances 
of what may be called parliamentary building, he may "run 
up" rows of small private houses, which will presently become 
lodging houses ; or he may adapt the family mansions of a neighborhood 
deserted by fashion, for occupation by working class families.':' 
Under these conditions there can be no question of a commercial or 
any other test : comparison is impossible. The municipality is compelled 
to take the refuse of a trade and to carry it on in the most 
expensive way: the private builder has the pick of the trade, and 
can adapt his expenditure to the pecuniary resources of the tenant. 
Moreover the Local Government Board, when it grants a local 
authority a loan with which to erect houses, always insists on much 
more stringent conditions as to building than are contained in the 
ordinary bye-laws. 

Other Undertakings. 

We come finally to a group of undertakings which, though they 
are revenue producing in the sense that the public pays sometln"ng for 
the use of the facilities provided, are still not generally expected to 
earn as much as they cost. To this group belong baths, washhouses, 
burial grounds, harbors, piers, docks and quays. It can hardly be 
necessary to demonstrate that it is better to give the poorest part of 

* By law a municipality can build shops on building estates, and adapt existinghouses for working class occupation. In practice these powers are rarely made use of. 

9 

the population opportunities to wash themselves and their clothes, 
even t~ough they cannot afford to pay the full cost of the baths and 
~aundnes. With reference to dead bodies also, it is obviously more 
Importa?t to get these disposed of quickly and safely (though our 
cem~t:nes often fail to do this) than it is to try to make every 
~umcipal cemetery pay as well as some do. Similarly with harbors, 
piers, docks and quays. The Town Council of Penzance, for instance, 
may very reasonably decide to promote the trade and prosperity of 
th~ town by dredging and by repairing the dock gates, even thoughthis for a time involves a contribution from the rates of some hundreds 
of pounds a year. The gain they look for is an indirect gain, or a 
gain only realizable in the future. 

The total figures for this last group of reproductive undertakings-baths, cemeteries, harbors, etc., according to the same Parliamentary 
Return, are : Total capital expended, £9,792,ooo, of 
which over £2,8IS,ooo had in 1902 been repaid or balanced bysinking funds. The yearly income-after deducting working expenses-
was about £1o5,ooo. The amount required for interest 
and repayment of capital was over £3711ooo, and the consequentannual charge on the rates was about £266,500. 

Such undertakings as the London municipal steamboats should 
not be judged merely by their financial results. Whether such 
boats should be run at a financial loss is a matter of opinion which 
ought to be decided by comparing the cost, on the one hand, with 
the gain to the population in health or pleasure, and the advantageaccruing from relief to the street traffic, on the other. There are 
many services a municipality might provide, the advisability of 
which depends partly on what the city can afford, and partly on 
considerations only remotely connected with wealth. 

The scope of municipal trading is not limited to the undertakings 
about which figures have been quoted in the foregoing.
The Parliamentary Return already alluded to mentions "other 
reproductive undertakings " on which a capital of £714,ooo has 
been expended, of which more than £15o,ooo had been paid off or 
provided for by sinking funds. The yearly surplus for these, after 
deducting working expenses, was about £48,500. The amount used 
for interest, repayment of capital, and set apart for depreciation, was 
about £33,200 a year, and the average annual net profit for four 
years was over £15,300. 

The Manchester Ship Canal was accomplished thanks to the 

financial support of the Manchester Corporation. Liverpool and 

Glasgow provide municipal lectures, Battersea has a municipal 

young men's club, many towns provide municipal concerts, others 

have pleasure piers, Torquay owns a rabbit warren and makes a 

profit on it, Colchester owns an oyster fishery, St. Helens and several 

other towns have sterilized milk depots, Hull manages a crema


torium, the Gloucestershire County Council even runs a canal, 

Doncaster owns a racecourse, Bournemouth provides golf links for 

visitors, Harrogate fireworks, West Ham runs a paving stone fac


tory, Bradford owns an hotel, scores of municipalities own property 


IO 

of various kinds, while some of them execute their own works and 
directly employ thousands of workers. 

In reckoning the advantages of municipal trading it must be 
remembered that the charges to the public for the service of water, 
gas, electricity, trams, and other public services, are usually lower 
than those of private companies ; the people employed are usually 
better paid, better treated, and work shorter hours ; those who lend 
money for the undertakings receive their interest regularly ; there 
are no bankruptcies ; and an incalculable amount of anxiety, uncertainty 
and friction is thus saved to the people concerned, and 
indirectly to those who depend on them or work for them. 

These municipal undertakings are, year by year, repaying the 
capital invested in them, so that in time the plant will belong to the 
towns free of debt. They will then, if they have been kept in good 
condition out of revenue, as is generally being done, either produce a 
larger income in relief of rates or be able to supply services still more 
cheaply. It will be as though limited liability companies accumulated 
reserves sufficient to pay off their capital, and thereafter 
reduced the price of their goods or presented the public with all the 
profits they earned. 

What then are the objections we hear so much of to the principle 
of municipal trading?
Those usually put forward are :


J. That town councillors are not competent to manage them ; and 
sometimes, on private grounds, appoint men to public posts for which 
they are quite unsuited; 
2. That such undertaking~ increase municipal debt and add to· 
the burden of the rates ; 
3· That it is "unfair " of municipalities to compete with privatecompanies;
4· That new inventions may some day render the undertakingsworthless; 
S· That there is a risk of the municipal employees so using their 
vote a; to obtain unfair advantages for themselves ; and 

6. That municipal accounts may be cooked to deceive the 
public.
Let us see what these objections are really worth. 

Objection I.-The Competence of Councillors. 

First, the importance of management as a factor in industrial 
success cannot easily be exaggerated ; but management is nowadays. 
as completely dissociated from ownership as machinery, and almost 
as easy to buy in the market. Nobody now suggests that a railway 
company is an impossibility because railways cannot be managed by 
a mob of shareholders, even when they act through committees of 
directors who do not know a piston rod from a trunnion. The 
directors simply prescribe the result they wish to obtain, and 
engage a staff of experts to tell them how to obtain it. Thus the· 
London and North Western Railway Company manufactures everything 
it wants, from locomotives to wooden legs, without the inter



II 

vention of a contractor. A mob of ratepayers acting through a 
municipal authority is in precisely the same position. The ratepayers 
are just as stupid and short-sighted as ordinary joint stock 
shareholders, and the worst of their representatives on the municipalities 
are as incapable as the worst ordinary guinea-pig directors. 
But the ratepayers and councillors light their towns with electricity, 
run tramway services, build dwellings, dredge harbors, erect dust 
destructors and crematoria, construct roads, and manage cemeteries, 
as easily as a body of clergymen's widows can lay an Atlantic cable 
it they have money enough, or an illiterate millionaire start a newspaper. 
The labor market now includes an ability market in which a 
manager worth £IO,ooo a year can be hired as certainly as a navvy. 

In spite of the fact that municipalities as yet move but slowly,
and that an energetic man sometimes chafes in their employ and 
prefers to enter a private firm, it may yet be truly said that, on the 
whole, in the ability market the municipalities have a decisive 
advantage in the fact that prudent and capable organizers and 
administrators prefer pu!:>lic appointments. A municipality can 
always get an official more cheaply than a company can. A muni· 
cipality never becomes bankrupt, is never superseded by a new 
discovery, and never dismisses an official without giving his case 
prolonged consideration in committee, from which he has practically 
an appeal to the whole body. A man who behaves himself and 
does his work has nothing to fear in public employment: his 
income and position are permanently assured. Besides, he enjoyshis salary to the full; he has no appearances to keep up beyond the 
ordinary decencies of life; he need not entertain, need not keepequipages or servants for purposes of ostentation, may travel third 
class if he likes, and belong to what sect he pleases or to no sect ; 
and this is why the ratepayers, in spite of their stinginess in the 
matter of salaries on the professional scale, get so much better served 
than they deserve. 

If this answer does not satisfy you, turn to the actual results 
attained. The fact is, that town councils are generally managingtheir undertakings better, from the point of view of the public, than 
private capitalists have done. London's municipal trams comparefavorably with the private companies' trams. The Manchester 
municipal gas supply compares favorably with Liverpool's privategas supply. The profits of a private gas company go, however, into 
the shareholders' pockets, with the result that in Liverpool a few 
people have a-strong interest in upholding "private enterprise" 
(that is to say, their own profit), while .in Manchester many people 
reap an advantage from municipal ownership. But as a few people 
making large profits can combine more effectively than manypeople reaping small advantages, the money and energy spent in 
attacking municipal trading is much greater than the money spentin showing the evils of private enterprise. As to the admitted fact 
that the public welfare is sometimes ·sacrificed to private considenitions 
by elected persons of a certain type when they are not restrained 
by publicity and their dread of the electors, this is clearly not a 


12 

sufficient reason for substituting the unrestrained and irresponsibleprivate "boodler" for the restrained and responsible public one, 
though it is a strong reason for arousing a deeper and more generalappreciation of the extreme importance of choosing reliable men at 
local elections. 

Objection 11.-The Burden of the Rates. 
The second objection, that such undertakings increase municipal 
debt and add to the burden of the rates, is absurd. The latter partof the statement is untrue ; for, as already stated, municipal tradinghas reduced the rates by earning a net profit. The increase of 
municipal debt for revenue producing undertakings is merely the 
increase of capital usefully and productively employed ; and the 
country would be worse instead of better off had this capital been 
raised by private companies instead of by municipalities. One of 
the weakest pleas employed by advocates of private profit-making is 
to call the money raised to start a private gas company " capital " 
and to speak of it as an indication of wealth, while calling the 
money raised to start a municipal gas works " debt," and regardingit as a sign of impending ruin. A real difference between the two 
is that the municipality arranges to pay off the money it borrows 
within a fixed term of years, whereas the private company wants to 
charge the public to the end of all time with interest and profits on 
the capital invested. 

Objection 111.-Unfair Competition. 

As for the third objectica there is, in one sense, a good deal to 
be said for the contention that private enterprises have not a fair 
chance in competition with municipal enterprise; for we have 
already seen that a municipality can get its skilled managers more 
cheaply than a private company can, and it is equally true that it 
can borrow its capital on better terms. Any of our large corporations 
can raise as much money as they need at less than 4 per cent.; 
and no private companies can get money at so low a rate. This is 
the central commercial fact of the whole question. The shopkeeper, 
by municipal trading, can get his light for little more than 
the current cost of production plus the rate of interest paid by gilt-
edged securities, because municipal loans are accepted by the 
investing public, and the municipal stock of towns with ov.er so,ooo 
inhabitants is regarded as a legitimate security by the law of trusteeship. 
Any profit that may arise through accidental overcharge 
returns to the ratepayer in relief of rates or in public service of 
some kind. Moreover, when a private company starts, it may be 
ruined by an accident or a miscalculation which prevents it from 
completing its undertaking with the capital at its command, whereas 
a municipality is in no such danger. 

It is therefore true enough that private enterprise can only com


pete with municipal enterprise if it happens to have some unusual 

advantage in the special ability of its organizer, or if it controls 

valuable patents or other rights. It is also true that a small shop



13 

keeper cannot compete with a universal provider, or a horse-cab 
cor_npany with a ta.xicab company, or a ferryman with a bridgebutlder, 
or the Belgtan army with the German army. That may be 
"unfair"; but does any sane person propose to suppress universal 
providers or taxicabs or bridges or the German army for the sake of 
the small shopkeepers and horse-cabdrivers and ferrymen and 
Belgian soldiers? There is no other sense in which municipaltrading is unfair. It is better. Yet the very people who complain-of this superiority try to persuade the public at the same time that 
private enterprise is superior to it. It would, in fact, be unfair to the 
community if the municipality failed to make use of its advantages. 

In the demand for handing over to private firms the work that 
the municipality can do more economically itself, we reach the root 
·of the controversy about municipal trading. A large part of that 
section of English society which is capable of expressing itself intelligibly 
aims at arranging matters so that some people (whom we will 
·Call A) shall work for others (whom we will call B) under conditions 
which ensure a flow of money into the pockets of class B ; and any 
.attempt to get the work of the community so organized that there 
shall be no " profit," but that class A shall be fairly paid, and the 
services shall be supplied to the consumers at about cost price, 
.appears to class B to be a foolish waste of opportunities Providence 
has supplied for the exploitation of the public. 

As soon as one has grasped this, the controversy becomes intelligible. 
One sees why some people talk nonsense and others listen 
.to it greedily ; and one understands why the newspapers, controlled 
by the capitalist class, are so bitterly opposed to municipal trading. 

Objection IV.-New Inventions. 

As to the fourth objection, relatmg to new mventions, it is a 
penalty attaching to man's fallibility that when he has done the best 
that the science of his day indicates, the results of his efforts mayhave to be thrown upon the scrap-heap because his successors 
may know how to get better results by quite other means-as 
stage-coaches and semaphores were scrapped by railways and tele·
graphs. But this is no reason for avoiding municipal action. In 
few branches of industry has invention been busier and scrapping 
more frequent than in electric lighting. Yet our municipal electric 
plants are as much up to date as the private ones. And the 
.advantage of the municip-ality is that though ·it can be benefited by 
a new invention, it cannot be ruined by it. The path of pro.g:ess 
.by private enterprise is strewn with bankruptcy, lunacy, and sutctde. 
The ruin which overtakes certain sections of the population when 
inventions are left to the wild scramble of speculators, company 
promoters, and ignorant investors, would stagger our anti-municipalizers 
if it could be estimated in figures. Municipal enterpriseneed ruin nobody. It simply adopts the new method at the point 
.at which its plant for the old method is worn out or costs less to 
scrap than to maintain. It has no prejudice against new methods: 
-on the contrary, municipal engineers have to spend more time than 


14 

they like in making reports in answer to members enquiring about 
such methods. And when a municipality effects an improvementin method, it has no motive to keep it a secret. It at once gives. 
the whole community the benefit of its ability and experience 
without charge. Secrecy and monopoly are of no use to it. To· 
reduce the rates or the charges to the public by improvements in 
machinery or organization is the feather in its cap which it most 
covets ; it is the surest way of gaining votes at the next election. 
The position of private ventures is very different. Some fresh 
application of electricity may ruin the gas companies ·; petrol-motors 
may ruin horse-bus companies; steam-motors may in turn ruin 
petrol-car companies, only to be themselves ruined a year later by 
electric-motors, and so on, till flying-machine companies ruin all the 
rest, and are in their turn wrecked by improvements as yet undreamed 
of, spreading dismay and ruin among thousands of innocent 
victims. 

Objection V.-Employees' Influence. 

As to the fifth point, the risk of municipal employees using their 
votes to obtain unfair advantages, it is conceivable that an active 
organization of municipal employees may some day play as selfish 
a part in municipal elections as that now openly played by those-
interested in commercial companies, though it is impossible for them 
to play an equally harmful one. But at the present time those who 
do much of the most necessary work, under the hardest conditions 
and for the poorest pay, have hardly any voice in settling the conditions 
under which that work shall be done. Surely it is the latter 
fact, and not the former possibility, that is the greater evil. The 
municipal employee is also a ratepayer : he is, in fact, his own 
employer, and, if he cheats his employer, cheats himself. It is true 
that if he is, say, a mason or bricklayer, he may try to push the municipality 
into excessive building. But he would have the same motive 
if the building work was given out to private contractors. Besides, 
all municipal employees do not belong to the same trade. As more 
and more members of the «ommunity become municipal or governmental 
employees, the problem will more and more be, how is the 
community to utilize the resources of the country and divide the work 
so as to obtain the best results with the least injury to the workers? 

Objection VI.-Cooked Accounts. 

With reference to the sixth point, the danger of the publicbeing deceived by the way in which accounts are presented, it 
should be obvious that work professedly done for the benefit of the 
community, and properly exposed to continual criticism in the town 
councils and in the public press, is less likely to be accounted for in 
a way calculated to deceive the public than work admittedly undertaken 
primarily to enable certain shareholders and capitalists to 
make as much profit as possible for themselves. As a matter of fact, 
many authoritie,s have done more than is demanded by the law, and 
have appointed professional auditors to check their accounts. 


IS 


The six objections to municipal trading have now been con-
sidered ; but certain points calling for further comment arise from 
what has been said. 

The Question of Character. 

Municipal trading is one of the chief means whereby the social 
and economic evils of our day can be met; but it is not a self-acting 
method. It depends always for its success on those who work it 
and on the community among whom it works. When all is said 
and done, municipal trading remains a machine by which men of 
capacity and goodwill can co-operate ; but the motive power to 
drive the machine must be generated in the hearts and minds of 
human beings. 

It is obvious that very much depends on the selection of municipal 
councillors, and it has already been pointed out that it is an 
urgent duty of citizenship to support and encourage those who are 
both able and willing to give good service to the public. The men 
best qualified for the work are often those who are reluctant to 
undertake it, for a man really qualified for the post knows how 
difficult and responsible public work is. 

It would, therefore, probably be wiser for the community to payits municipal councillors, for it would then have a larger choice of 
candidates, and could be more stringent in its demands upon them. 
We have in this respect much to learn from Germany, where men of 
ability who make the work of municipal government their profession 
are elected mayors of towns, and are well rewarded both in moneyand honor. 

Other Considerations. 

Very important matters in comparing municipal trading with 
private trading are the question of the minimum wage, and the disadvantage 
(unless everyone employed by the contractor receives a 
full living wage) of contracting out work the municipality could 
reasonably do themselves. 

This, and the important and not generally understood allied 
question of parasitic industries, is dealt with in Mr. and Mrs. SidneyWebb's "Industrial Democracy"; and an admirable summary of 
their argument is given in Bernard Shaw's "Common Sense of 
Municipal Trading," to which (as well as to Tract No. 128, on the 
Legal Minimum Wage) the reader is here referred, lack of space 
preventing us from dealing adequately with the subject. 

Desirable Extensions. 

Among the services municipalities might in the near future undertake 
or greatly extend much to the advantage of the public are 
Electric Power (Tract No. I 19), the Milk Supply (see Fabian Tracts 
Nos. 90 and 122), Slaughterhouses (Tract No. 92), the Drink Traffic 
(Tract ·No. 86), Hospitals (Tract No. 95), and Pawnshops (Tract No. 
91), not to mention many other things.

It needs no long argument to prove that the community has a 
stronger reason for wishing to obtain its supply of milk pure and as 


16 

near cost price as possible than any private trader can have for 
wishing to supply it in that condition and at such a price. It is 
equally evident that the milk supply of a whole town can be more 
economically organized if it be centralized than if it be left to the 
haphazard competition of a dozen or a hundred private dealers, 
several of whom may be sending their carts every day in competition 
with one another along the same streets. Similarly it is 
more to the interest of a community to slaughter only healthy 
animals for human consumption, and to do this as far as possible 
under cleanly conditions, than it can be to the interest of privateslaughterers. Again, with the supply of coal, it is to the interest of 
mine owners and coal dealers that the difference between the cost of 
obtaining the coal and the price paid by the retail consumer should 
be large ; but it is to the interest of the community to have coal 
supplied as nearly as possible at the price it costs, which could be 
done by nationalizing the mines and municipalizing the local 
distribution. 

The Limits of Municipalization. 

It must, however, on no account be supposed that it is desirable 
for our town councils to municipalize everything. 

If the medical officer of health wants a microscope or the county 
surveyor a theodolite, it will not pay the municipality to set up a 
scientific instrument factory to produce that single article, possibly 
of a kind which can be produced by half a dozen firms in sufficient 
quantity to supply the whole of Europe. Even the London County 
Council, with all its bands, has never proposed to manufacture its 
own trombones. The demand for the commoditv must be sufficiently 
extensive and constant to keep the necessary plant fullyemployed. The moment this limitation is grasped, the current 
vague terrors of a Socialism that will destroy all private enterpriselaugh themselves into air. The more work the municipality does, 
the more custom it will bring to private enterprise ; for everyextension of its activity involves the purchase of innumerable 
articles which can, in the fullest social sense, be produced much 
more economically by private enterprise, provided it is genuinely 
self-supporting, and does not spunge on the poor rates for part of 
the subsistence of its employees ; in short, provided it works under 
a "fair wages" clause. 

A very serious and quite artificial obstacle to municipal trading, 
as has been already indicated, is presented by the limits within 
which the activity of each separate borough is confined. In the 
country, municipal enterprise is reduced to absurdity by the smallness 
of the areas and their openly nonsensical boundaries. Mr. H. G. 
\Veils's description (in" Mankind in the Making") of his residence on 
the boundary between Sandgate and Folkestone (two places as continuous 
as Mayfair and St. James's), a boundary which no municipal 
tramcar can cross, shows the hopelessness of substituting public for 
private Collectivism there. A shipping firm whose \'essels were forbidden 
to cross any degree of latitude or longitude might as easily 


17 


compete with the Peninsular and Oriental as the Folkestone municipality 
with a trust which could (and would) operate over a whole 
province. 

In towns the nuisance of antiquated boundaries is equally flagrantand often financially much more serious. But evidently this is a 
difficulty which can be dealt with as soon as public opinion is 
educated up to the point of wishing to have it altered, a processwhich will probably be assisted by the success of various large trusts 
in crushing small competitors and monopolizing large industries for 
private profit. In America the Standard Oil Company and other 
large combines have done more than any Socialist arguments to open 
people's eyes to the evils resulting from industrial competition, or 
rather from that stage of economic progress which is rapidly replacingcompetition by combination, and which, while it does away with the 
inefficiency and wastefulness of the small, old-fashioned and incompetent 
trader, introduces its economies and improvements not 
for the benefit of the public (though incidentally they may get some 
crumbs of advantage) but for the gain of the capitalist. 

The Evils of Private Trading. 

It will also be assisted by a growing appreciation of the evils 
which accompany private trading. The wastefulness of private 
competition is so obvious that the average town councils would have 
to be worse than Tammany Hall ever was before a communitycould reasonably prefer to entrust its public services to the private 
trader. For though Tammany bosses made fortunes at the public 
expense by corrupt means they were at least capable and efficient 
business men ; nor did they upset the industrial and economic life of 
the community as it is upset by speculators of the type of Whitaker 
Wright or the Directors of the City of Glasgow Bank. 

In comparing private with municipal trading one has to bear in 
mind the indictment of ordinary commercial trades made by Sir 
Edward Fry, late Lord Justice of Appeal, who said: "If one 
enquires whether the morality exercised in the conduct of business 
in this country is satisfactory or not ... . I fear the answer most 
be in the negative. Let me enumerate some well known facts:


" r. Over-insurance of vessels .... when one considers how 
nearly this sin approaches to the crime of murder this consideration 
is startling. 

"2. The bad and lazy work too often done by those in receipt of 
wages.

"3· The adulteration of articles of consumption.

"4· The ingenuity exercised in the infringement of trade-marks, 
and the perpetual strain exhibited by rival traders by some device or 
other to get the benefit of the reputation and name of some other 
maker. 

" 5· A whole class of frauds exists in the manufacture of goods,
by which a thino-is made to appear heavier or thicker or better in 
some way or o~her than it really is. The deceit is designed to 
operate on the ignorant ultimate purchaser. 


18 

1' 6. Lastly, but not least, bribery in one form or the other riddles 
and makes hollow and unsound a great deal of business." 
Add to this that a Special Committee of Enquiry of the London 
Chamber of Commerce reported:


"Your committee conclude from the evidence before them that 

secret commissions in various forms are prevalent in all trades and 

professions to a great extent, and that in some trades the practice

has increased and is increasing ; and they are of opinion that the 

practice is producing great evil, alike to the morals of the com


munity and to the profits of honest traders." 

One has also to bear in mind that the late Lord Chief Justice 
Russell, addressing the Lord Mayor in 1898, described companylraud as "a class of fraud which is rampant in this community-
fraud of a most dangerous kind, widespread in operation, touchingall classes, involving great pecuniary loss to the community, a loss 
largely borne by those least able to bear it ; and, even more 
·important than this, fraud which is working insidiously to undermine 
and corrupt that high sense of public morality which it ought 
to be the common object of all interested in the good of the country 
-to maintain-fraud blunting the sharp edge of honor and besmirch


·ing honorable names." 

It would be easy to continue this indictment of present day 
-methods by reference to the condition of many of the workers and 
the elaborate deception of consumers by enormously expensiveadvertisements, on the production of which a not inconsiderable 
portion of the energy of our population is wasted. Many of these 
advertisements are mischievous and dangerous as well as wasteful, 
leading people to depend on drugged or innutritious foods, on 
tyres falsely alleged to be non-skidding, on quack medicines, 
etc., etc., etc. 

Experience shows that it is difficult to insist on a high standard 
.of morality in war time ; but to take the case of the South African 
scandals as a typical instance, we find that the twelve ounces to the 
pound jam came from private, and not from government, factories. 

The Incidence of Rates. 

Something still remains to be said about a matter referred to at 
the commencement of this Tract, namely, the incidence of the rates. 
The progressive mayor of one of our large towns felt tempted to 
declare not long ago that municipal improvements should be 
stopped until the right to rate ground values had been obtained; 
for, said he, what is happening here and in other places? We are 
heavily rating our people in order to make roads and pave streets, 
and supply gas, water, and trams. The effect is to send up the 
price of the land we reach. Now a few years hence we shall have 
to buy parts of that land at a much higher value for schools, parks, 
.open spaces, post offices, etc., etc. Then the very people who have 
paid the high rates expended on giving the increased value to what 
was agricultural land, will have to pay higher rates to buy it back at 
its enhanced price. 


19 

In reply to this it will be said that what happens is that the 
increase of rates really comes instead of an increase of rent, and that 
in this way ground landlords are already contributing largely to the 
rates ; that, in fact, the present system is a rough way of taxing 
rent. And it really does so when the tenant is rackrented to the 
last farthing ; but then very few ratepaying tenants are so rack-
rented. If the tenant would at a pinch pay another two pounds a 
year, say, sooner than move (a pretty common case, one guesses),
he is, from the economist's point of view, enjoying two pounds a 
year of the rent; and if his rates go up by two pounds he will not be 
able to shift the increase on to his landlord. All that will happen is 
that his rent will become a rack-rent instead of falling two poundsshort of it. The rate collector takes what the landlord spared. 

The remedy is to tax all whose incomes are unearned ; not the 
ground landlords exclusively, though, as a class, they gain most by 
municipal expenditure, and it is they who should pay the greater 
part of the local rates. When it carries to a question of national 
taxation, on the other hand, there is no reason why those who have 
large incomes from Consols or shares in industrial enterprises, should 
not also bear a large part of the burden ; for they benefit from the 
maintenance of army and navy, police, etc., quite as much as the 
owners of the land. 

The Last and the Next Generation. 

The efforts of our forefathers during the last I so years have solved 
one half of the economic problem. Man has obtained such a mastery 
over matter that it would be easy to-day to organize the labor of 
the inhabitants of this country so that all might be well fed, clad! 
housed and trained. It remains for us to accomplish the other half 
of the problem by arranging the production and distribution of 
wealth so as to minimize waste, and by making it difficult for the 
crafty to exploit the simple, to make it easy for all to obtain a fair 
share of the produce of their own labor and of the fruits of the 
organized efforts of the community.

In the gradual accomplishment of that task municipal trading 
can perform a large and useful part when once the question is 
properly understood and elections so conducted that public spirit and 
business capacity meet on our municipal councils. 

Municipal trading has its limits. Some services, such as the 
railways, should not be municipalized but nationalized ; and, as 
already indicated, there is no reason why ample scope should not be 
left for individual enterprise. But the reasonable limits of municipal 
trading have not yet been approached, even in our most progressive 
cities. 

(Free use has been made of Bernard Shaw's "Common Sense of MunicipalTradmg " and R. B. Suthers' "Mind Your Own Business" in preparing this Tract, 
and many passages have been borrowed from those works.] 


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