THE DIFFICULTIES OF CONTROL AS ILLUS

TRATED IN THE HISTORY OF

GAS COMPANIES.

Professor JOHN H. GRAY, Northwestern University.

One of the most striking things in the political, industrial, and administrative development in America, is the fact that conditions grow up, develop, and press for a solution long before the most advanced thinker has worked out any theory of how to deal with them.

We are in an age of marked increase and concentration of machinery and industry under corporate management. So long as we expect to make material progress, we must apparently not only expect this movement to continue, but also to increase in intensity. The size, too, of the individual corporation is likely to grow.

We have discovered no other form of voluntary organization capable of carrying the world's progress forward. Whatever may be said of government socialism as a remedy, it is not likely, in our day, to drive all the public-service corporations from the field, or even to do away with the particular kind of corporation now under discussion.

If, then, the privately owned corporations have come to stay, what can we do to lessen and curb the unmistakable evils connected with them, at the same time that we render more satisfactory the service furnished by them, and encourage private enterprise?

Let us confine our attention at present to the gas industry. In the first place, we are fortunate in the kind of corporation selected. Whether we consider the question historically or theoretically, the incorporated gas company presents almost every interesting phase of what is known as the corporation problem.

Artificial illuminating gas is now about to enter upon its second century. Within recent years, three important competitors have entered the field; namely, petroleum, natural gas, and electricity. Nevertheless, artificial gas remains to-day, for the great majority of city dwellers, the most widely-used, the cheapest, and the safest means of both public and private lighting.

The supply of this service is recognized to-day by all competent students, if not by all voters and legislators, as one of the most perfect types of what are known as natural monopolies. The gas company usually requires, in addition to a franchise, a special local license for the use of the streets. When installed, the corporation comes perhaps into closer contact with both the individual consumer and the municipal government than almost any other corporation enjoying special privileges in the streets. Both the manufacture and distribution of gas are highly technical operations, requiring、 a considerable degree of skill. Of the cost or methods of these operations, the average consumer, under present conditions, can know nothing. The fluctuations in the price of materials, and the constant improvements in methods and processes of manufacture add to this difficulty. In fact, to say nothing of cost, the consumer is unable to determine for himself even the quality, purity, and safety of the article offered him. Some idea of the rapidity and wide-reaching influence of these changes can be seen if we recall the fact that within a period of about twenty years, one complete revolution in method of manufacture (involving almost a complete change in major and minor materials) has been wrought; while within the last five years changes have been introduced which those in control of the processes, believe will, in the immediate future, work a still greater revolution than that brought about by the introduction of water gas. This process involves a return to bituminous coal as the chief material, but by a change of method the gas becomes no longer the chief product or aim of the operation, but

merely the joint, and minor, or by-product, of a coke manufacturing plant.

It is, in my opinion, altogether too early to predict the outcome of the attempt to distribute coke-oven gas over great areas from a central plant. But we should not lose sight of the fact that the venture is in the hands of men powerful-both intellectually and financially; and, that the experiment has already gone far enough to call forth a large investment of fixed capital. This investment has, of course, already deeply affected the securities of the old companies in that vicinity; while the pressure for privileges for the coke-oven experiment, now in progress at Everett, caused the legislature of conservative Massachusetts to reverse entirely the policy of the state in regard to publicservice corporations.

If anything further were necessary to prove that the gas companies are typical of the problems now uppermost in the public mind, a mere reference to the fact that the Bay State Gas Company of Delaware-of which more hereafter-a financial company organized chiefly to recapitalize the surplus of the Boston companies, has authorized an increase of its nominal capital, within a short time, to $1,000,000,000— the largest nominal capitalization ever reached in the whole history of joint-stock companies.

So long as such changes in the industry as have taken place in the last two decades are in progress, or are even seriously anticipated, control of the companies, while all the more imperative, is doubly difficult to obtain with our weak condition of government. For, until the honest and wellmeaning, but uninformed, voter has thoroughly discarded his instinctive faith in competition in this industry, any shrewd and unscrupulous manipulator who can get possession of patents for supposed improvements, can blackmail existing companies. Any refusal on the part of the old company to pay the tribute demanded by the holders of these patents, whether the patents promise to be useful or

not, means, in the present condition of public opinion, simply the introduction of a competing company, with its inevitable burdens for the consumers. This is all the more true so long as public opinion can be so easily manipulated. So far a company has had to count on frequent attacks of this kind from the enemy, and has tried to adjust its income to meet them. But to do this it is necessary for it to keep all of its affairs as secret as does an army in the face of the enemy.

This is the key to the situation; and whatever policy of the state towards these corporations will tend most effectively to educate the voter as to the true nature of the companies and their business, is the best policy. It ought to be needless to say that until the average voter is much better informed in regard to the complexity and scientific needs of government and industry, public ownership will not bring about the desired results. It is safe to say that we have no governments to-day, state or local, capable of dealing satisfactorily with existing evils under any form of ownership or control, and that we shall have none until the mixed population of our cities realizes that non-partisanship, permanency of tenure, and high scientific qualification are requisite to successful administration of government, and especially to the successful public control of corporations.

This is perhaps as important a question as any with which the American public has ever had to deal. It should not escape observation that, in addition to being corporations liable to all the ills to which such bodies corporate are subject, these particular corporations operate almost entirely in the cities, and in a very important sense in the great cities, and thus touch the whole question of local and municipal government. It is doubtful if any considerable improvement in city government can be rationally looked for unless preceded by, or at least accompanied by, an improvement in the kind of corporation under consideration and in its relation to the public. The marvelous development of our cities

and our material resources in general, with the necessary haste and pressure accompanying it, has caused a general neglect of public affairs and, at the same time, has allowed evils in the management of public-service corporations to become truly gigantic before any unified body of knowledge grows up, and before public sentiment can be created and concentrated upon the evils. Above all, this haste, confusion, and absence of any principle of action has prevented effective public demand that the state should make any seririous attempt to enforce even its common law right of supervision over corporations, or that it should reserve in the act of incorporation the additional statutory powers necessary to effectual control under modern complex conditions. Thus it is that the companies have in practice been able to maintain almost universal secrecy. They were allowed to run wild for so many years that they actually came to despise the state that created them, and to believe that this creator had no moral or legal power over them. If their beliefs did not go so far as this, their practice extended at least to a virtual denial of the right of the state to enforce even the rights expressly reserved to it by the charter. The managers went so far at one time as to claim that all knowledge of the affairs of the companies not only of right belonged exclusively to them, but also that such knowledge, if imparted, could have but little interest or value for any one else.

This chaotic condition lasted in the older states until after the Civil War, and has not yet disappeared from many portions of the country. There being during this period no popular or legislative appreciation of the monopolistic character of the industry, there is scarcely an important city in the United States-outside of Massachusetts, whose companies will receive special attention presently-in which rival gas companies have not, at one time or another, waged war upon one another. Partly from ignorance, partly from simple yielding to popular prejudice and clamor to catch