Popular Science Monthly/Volume 53/September 1898/The Nationalization of the Railroads in Switzerland

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ON the 20th of February, 1898, the Swiss people accepted by an overwhelming majority a law referred to them providing for the purchase and operation by the state of the railroads of the country. The vote marks the end in Switzerland of the system of private management of railroads, and the coming in of a new system of state management. The action is one of interest and importance to all people everywhere, because it evolves momentous political and financial as well as economical and social considerations.

The agitation of the question whether the railroads should be constructed and managed by the state began in Switzerland almost with the beginning of railroad building. The first railroad, from Basle to Baden (Switzerland), was opened in 1847. A plan for the construction of a system of railroads by the confederation and the cantons concurrently, prepared by the federal council at the suggestion of the national council, was rejected by the national council, which voted in July, 1852, by a large majority, in favor of construction by private companies, under charters issued by the cantons with the approval of the confederation. This condition was not satisfactory to the federal authorities, and a law was passed in 1872 enlarging the powers of the confederation and giving it the control of the concessions. That law, with supplementary provisions making it stronger, has continued in force till the present time.

All the concessions, both cantonal and federal, contained provisions looking to the ultimate repurchase of the railroads, opportunity for which was given at certain stated intervals (apparently every fifteen years) upon five years' previous notice. On the coming of the first of these periods of maturity, in 1883, the question of repurchase was raised in the federal council, but the financial condition of the railroads not being very good then, no action was taken. This opportunity having been allowed to pass, no other would be afforded till 1898. Still, the friends of the national system pushed their measures, urging that the state enter into friendly negotiations with the railroads for buying them in, or buy enough of their stock to secure control of the disposition. Tentatives were made in both these directions, but they all came to an end in one way or another before any material results were accomplished. Then the idea of expropriation was started, its advocates maintaining that the state was not bound by the limitations in the concessions, but could take the railroads at any time upon paying a just price. The federal council did not accept this view, and preparations were begun for exercising the right of purchase in 1898. The federal chambers in 1892 commissioned the federal council to consider measures looking to this end—that is, to prepare legislation that would give the confederation advantages in the transaction. In 1895, a law was passed requiring stockholders to register six months before voting in the company meetings. This, it was thought, would reduce the vote of the foreign stockholders, but it had the opposite effect, for the small Swiss holders would not take the trouble to register, while the large holders abroad did. The same law gave the confederation and the cantons the nomination of representatives who should have power to vote in the companies' directories. In the same year a bill was introduced requiring the railroad companies to present exact accounts of the condition of their lines and their management, with a provision suppressing the special tribunals provided for in some of the charters for the arbitration of differences between the state and the companies, and giving their jurisdiction to the federal tribunal. The purpose of this law of accountability was to meet the stipulation in the charters of the railroads that the state, in buying them in, should pay the companies twenty-five times the value of the net annual revenue of the roads as determined by the average of the preceding ten years, while it should in no case be less than the capitalized value of the plant of the company. It was sought to secure more accurate determinations of the "net annual revenue" and the "value of the plant" on which the amount paid on purchase was to be based. This bill was fought both by the adversaries of purchase and by those who insisted that the transaction should be carried through according to law and without violation of the rights that had been acquired by the existing proprietors of the railways. The latter objected that it modified all in favor of the state clauses of the charters—bilateral contracts that bore the signature of the state. The partisans of the bill denied that the concessions were of the nature of a bilateral contract. They held that a railway concession was a law, an act of the sovereignty of the state which created, it was true, acquired rights, but which the state could always modify so long as it did not violate the acquired rights; and that the proposed law of accountability violated no right. The majority of the chambers took this view, and the act was passed March 27, 1896. A referendum was called for, and the act was approved by the people after an exciting campaign, 223,228 electors voting aye, and 176,577 no, out of a total of 714,033 entitled to vote.

The acceptance by the people of the law of accountability opened the way for ultimately buying in the lines. While some persons probably voted for accountability who did not really favor purchase, but because they thought the law in itself a good measure, the result was in effect a moral victory for nationalization. Furthermore, the new law, of its own force, by suppressing some of the guarantees which had been given the companies in the concessions, improved the situation of the confederacy as to the measure of repurchase, and removed some of the difficulties that had stood in the way of the consummation of the scheme. Immediately upon the adoption of the law of accountability by the people, the party who had theretofore demanded the nationalization of the railroads by expropriation placed themselves on the side of repurchase on the basis of the concessions. In their opinion, there was no longer any danger of purchase on those terms being too advantageous to the shareholders or too onerous to the state, the law of accountability, as they believed, giving the state power enough in adjusting the cost of the transfer. Previous to the adoption of this law the socialistic party had issued a demand for the initiative toward expropriation of the railroads; but although more than fifty thousand signatures—the number constitutionally required for the referendum—had been secured for their petition, its authors withdrew it, in order that the partisans of nationalization might not be divided upon a question of methods.

As the next term when the state could take the railroads would fall, as to most of the companies, in the spring of 1898, the federal council had no time to lose if it would avail itself of a vote of the chambers and of the people in favor of purchase. The law of accountability went into force on the first day of November, 1896. On the 25th of March, 1897, the federal council laid before the federal chambers the draft of a law for the purchase and operation of the railroads by the confederation, with a long explanatory address.

This draft contemplated the repurchase at the earliest period named in the concessions, and the subsequent operation of the five principal Swiss railway systems—the Jura Simplon, the Central, the Northeastern, the Swiss Union, and the St. Gothard. The lines belonging to these five companies had an aggregate length of 2,578 kilometres, and represented all the principal constituents of the railway system of the country. Only a few secondary lines of normal gauge and the narrow gauge and mountain railroads would remain in the hands of their original proprietors. The bill provided for the accomplishment of the acquisition in conformity with the federal legislation and the concessions, and proposed that the federal council be likewise authorized, with the consent of the federal assembly, to buy the lines mentioned as excepted, in conformity with the regulations for determining the purchase price. The confederation should procure the funds necessary for the acquisition of the railroads and their operation by the issue of bonds redeemable in sixty years or in accordance with a previously arranged table of redemptions. The draft also provided that the accounts of the federal railroads should be kept distinct from the other branches of administration, so that the financial situation in respect to them could be exactly ascertained at any time. Their net revenue should be employed, first, for the payment of interest and the extinction of the railroad debt; thus serving to supplement the annual returns and making possible a reduction of rates for transportation.

It was provided that the management of the federal railroads should constitute a special division of the federal administration, and should be subject to the supervision and control of the federal authorities; but when it came to arranging the details under this category, the federal assembly made some important changes, which were embodied in the law as it passed.

To the federal assembly was reserved the power of examining and approving the annual accounts on the reports of the management; deciding, with the reservation of the referendum, concerning the construction of new lines and the acquisition of existing ones.,

To the federal council was given authority to draft regulations for the execution of the present law; to name twenty-five members of the administrative council, the members of the general direction, and the members of the arrondissement directories; to approve the annual budget; and to present to the federal chambers the annual accounts and the reports of the management, as well as propositions relative to the construction of new lines and the acquisition of existing ones; and to continue the exercise of functions already possessed by it respecting private lines, so far as those functions are applicable to the federal railroads.

As special to the working of the railroads and with functions extending over the whole system, were instituted the administrative council and the general direction; the administrative council to be composed of fifty-five members appointed for three years: twenty-five by the federal council, twenty-five by the cantons, and five by the arrondissement councils—the federal council so to adjust its nominations that agriculture, commerce, and industry should be equitably represented in the body. This administrative council was given the supervision of the whole administration of the railroads and the functions of preparing the annual budget for submission to the federal council; of examining the annual accounts and reports of operation for submission to the federal council; of fixing rates, classifying merchandise, and making regulations for the time schedules; of satisfying all important agreements made with other railroad enterprises; of preparing the plans for new lines, expensive constructions, and the completion of important works in the system in operation; of approving contracts involving more than five hundred thousand francs; of ratifying the appointments of chiefs of service, and the fixing of their compensation within the limits of the law and the budget; of the determination of the general conditions on which persons employed shall be engaged; and of examining propositions relative to the construction of new lines and the modifications that may be needed in legislation respecting the federal railroads. It further had the naming of a permanent commission charged with the preliminary examination of affairs—of six members—of which its own president was the chairman.

The general direction was composed of from five to seven members to be named by the federal council, sitting at Berne, holding office for six years, and having its president and vice-president chosen by the federal council. To it, subordinate to the federal authorities and the administrative council, was given the work of management, the preparation of the annual budget, the establishment of the accounts, the making of the report of management, the preparation of the business to be submitted to the administrative council, the carrying out of the directions of that body, the preparation of regulations, tariffs, and time schedules; the control of the receipts from working and the material; with the making of agreements subject to the ratification of the administrative council, and the appointment of functionaries who are directly responsible to it.

The federal system was divided into five arrondissements, localized at Lausanne, Basle, Lucerne, Zurich, and St. Galle; with at the head of each arrondissement an arrondissement directory of three members appointed by the federal council, each administering the arrondissement of which it is in charge. These directories were each supplemented by an arrondissement council of four members appointed by the federal council and from eleven to sixteen members by the cantons constituting the council. The creation of these supplementary councils was a concession to the federalists, but more apparent than real, for the functions conferred upon them were extremely modest, and consisted in giving their opinion on questions relating to the railroad service, approving of the annual budgets and accounts prepared for submission to the general directory, determining upon all credits not exceeding one hundred thousand francs not provided for in the annual budget, approving the reports of the arrondissement directories, and the right conferred upon each of them to appoint one member of the administrative council.

The organization of the future federal railroads, therefore, notwithstanding the apparent concessions to the cantons, was strongly centralized. All important decisions were placed under the control of the general direction and the arrondissement directions, the members of all of which were directly dependent upon the federal council, which could appoint, control, and, on occasion, remove them.

69Certain promises had to be made in the law to satisfy different regions having extensions of lines in view that their works would not be neglected. The most important of these extensions was the Simplon Tunnel, which the Jura Simplon road was just about to undertake, and in which French Switzerland was deeply interested. The law pledged the confederacy to complete this. The eastern cantons had extensions and passages of the Alps in view, and provision was made for these, a special guarantee being given to St. Galle for the construction of the Ricken line. To meet expressed fears that the secondary lines, if not cared for by the confederation, becoming unprofitable, would be abandoned, a stipulation was inserted providing for their purchase in the future without the necessity of a new referendum. The act as finally adopted by the chambers was regarded by those in favor of the purchase as a happy compromise which would rally all parts of the country to the support of the great national measure. The adversaries of the scheme regarded it as a great deal, intended not to improve the plan but to gain votes for it and make it acceptable to a coalition of interests. But it is certain that the object sought by the majority was obtained, and the amendments silenced the most active of the opposition. Party discipline was also brought to bear against dissent, and all the radical left except one deputy voted for it on its final passage. The majority by which it was accepted was further made up of the extreme socialistic left, a part of the center, and a small fraction of the left. The opposing minority was made up of the larger part of the Catholic and federalist left and a part of the liberal center.

The enactments relative to service on the railways make Swiss citizens residing in Switzerland alone admissible. The term is three years, and all in the service, together with the members of the administrative council, the general directory, and the arrondissement directories, are removable by those who appoint them.

A pension and assistance fund for the officers and men employed is provided for, to be kept up, half by the contributing members and half by appropriations from the management fund; its statutes to be established by the federal council. The existing pension and assistance funds may be continued if thought best, but their members can not at the same time be members of the general fund.

In a message accompanying the submission of its project to the federal chambers, the federal council presented as a first argument in its favor the saving it would effect of the time, labor, and absolutely useless expenditure involved in carrying separate transactions between five different companies and in maintaining their several special organizations and offices. Further, great advantages would be gained in the matter of support and supervision of the lines, the security of the traffic, easier adjustment of time schedules, and international relations, if a single administration was created. The local service would be ameliorated, for a single administration would be able to give the unproductive lines advantages realized on the productive ones, while private companies would naturally serve the productive lines first, and do no more than was indispensable—often, indeed, than the least provided for in the concessions—for the secondary lines.

To the advantages derived from consolidation would accrue those arising from administration by the state, which would look to securing a working advantageous to the whole public, while to private companies the advantage of stockholders would always be sought first. It would be able to effect desired reforms in rates, making them uniform where they were now various, often to a considerable degree, with inconvenient complications arising.

The necessity of gradually extinguishing the capitalized obligations of the railways was insisted upon. By about the middle of the next century the countries around Switzerland would be in possession of unincumbered systems, provisions to bring such a result about being already in operation in France, Prussia, Austria, etc. Switzerland ought to follow the example of these nations, else it would then find itself in an inferior position as to them. They would be able, among other things, to make great reductions in their tariffs, which, if Switzerland could not meet them, would expose it to disastrous competition. The extinction of the railroad debt should be attended to now. If it was put off till the next time purchase would be possible, or till 1913, there would be no possibility of completing the enterprise before the middle of the century. It was further held to be necessary to rid the railroads of the foreign influences to which they were subject because of so large a part of their stock and obligations being held by capitalists abroad, a condition politically mischievous and humiliating to the country; and the flow of money out of the country in dividends to these alien holders would be stopped.

Other arguments were addressed to particular classes, especially to the men employed on the lines, to whom the particular advantages of state service over private were held out in all their tempting aspects.

The law of repurchases having passed, October 15, 1897, the opposition to it canvassed all the cantons in order to obtain the thirty thousand signatures required by the Constitution of the republic to secure its reference to a direct vote of the people. considerably more than that number were obtained, and the referendum was appointed to be made February 20, 1898. An active discussion of the merits of the scheme was going on all the time, and continued till the vote was taken. The several parties now took their positions on the subject.

The socialistic party had been for many years most ardent advocates of the nationalization of the railroads, but were not fully pleased with the plan of the chambers, because it gave too much control of the direction and too much power to the federal council. They would have preferred to have the administrative organs more independent of the political authority, and to have them, in part at least, named by the people. Yet they thought it would be contrary to their principles and their previous record to oppose a scheme which took so valuable a property from private companies to give it to the state. Assent to the measure was supported at the convention of the party in Zurich, November 14th, with strong arguments, by Mr. Wullschleger, of the national council, notwithstanding all the amendments he had offered in the council with a view to making the law more consonant with their ideas had been rejected; and a long resolution was unanimously adopted without discussion demanding the purchase as an essential article of the socialistic programme and a victory over capitalism, and an active propaganda in favor of the law was instituted.

The radical party, the party in power, controlling large majorities in both chambers, and responsible for the passage of this law, was committed to it by the very nature of the situation, and was especially strong in its favor in German Switzerland. Yet there was some opposition to it within the party, particularly in French Switzerland. But the mass of the radical opponents were ultimately won over to favor the purchase. M. Numa Droz, however, ex-president of the confederation, held out to the end, published a remarkable pamphlet, and spoke against the purchase in the principal towns of French Switzerland. He held a few adherents, but the radical meetings as a whole voted for purchase, and the general convention at Berne, December 12th, adopted an address of considerable length recommending it. The mass of the opponents of purchase in the chambers was composed of the Catholic right, and their attitude was dictated by motives of principle. They were adverse to a large extension of the functions of the confederation, opposed nationalization as a dangerous arm to put in the hands of the central power, and brought considerations of financial prudence to bear on the question. Still, some of them were gained over, and in two of the cantons they made an active campaign in favor of the measure.

The federal Catholics were also against purchase, and in their convention at Berne, December 16th, recommended the rejection of the scheme.

The conservative liberal party, alone of the more important Swiss parties, had no organization extending through all the cantons. It was composed of cantonal groups who found themselves in general agreement on federal questions, and were most numerous in the Protestant cantons. They made an energetic campaign against purchase.

Parties divide themselves, in Switzerland, on most questions, according to their centralistic or unitary, or their federalistic tendencies. The centralists seek the progressive unification of the nation, and would give the utmost power to the central authorities, at the expense of the cantons; while the federalists, regarding the historical traditions of Switzerland, would preserve to the cantons the power left them by the Constitution of 1874, and contend, step by step, against any rupture between the central power and the local authorities. These two tendencies were again ranged in conflict on the present occasion. Besides objections to any disturbance of the present relations between the cantons and the federal authority, other considerations were urged in the discussions before the people against the principle of the nationalization of railroads. The management of the railroads, some said, should not be committed to the state, because it is not one of its proper functions, and because of the wrong of exposing its finances to the risks inherent in such a combination. The state goes out of its sphere when it undertakes to manage transportation. Its mission is to defend the interests of the public by exercising an effective supervision over the administration of the private companies. Further, mischievous results were to be feared from the influence of politics over railroad management. State management might be a good thing if it was inspired solely by regard for the general interests of the country; the lines should be administered in a commercial spirit. With the railroads in the hands of the state, political influences would operate in the appointment of functionaries, the arrangement of time schedules, the adjustment of rates, and the construction of new lines, and their effects could only be disastrous. The control of so considerable a financial administration would also be detrimental to general politics. Entering into political discussions, it would make them more complicated and bitter; and the central power would be able to exercise a considerable pressure on the deputies in the chambers and on the electors themselves. Those who feared the effect of such influence on parliamentary independence and on the freedom of the vote of the people ought, therefore, to reject the project.

Economical and financial arguments were also extensively used by the opponents of purchase, and were brought forward with much force in two pamphlets which created much sensation in the country—one by ex-President Numa Droz, and the other by Dr. J. Steiger. The question was asked in these publications whether the railroads, in the hands of the confederation, would yield a financial return that would permit the realization of the hopes of improvement in the service without risk to other interests of the confederation to which the project of purchase had given rise. They reviewed the propositions which the federal council had emitted on this subject, and attempted to show that it had failed to take account of several items which might tend to increase the expenditure side of the budget. No allowance had been made for the expenses of improvement and construction and completion of the lines, which had cost the five companies thirteen million francs a year; or for the cost of tunneling the Simplon and making the eastern extensions that were promised; or for the loss of receipts that would be incurred through the promised reduction of rates. It seemed a probable result of the calculations made by the authors that the working-expense budget of the federal railroads would have to bear a considerable deficiency, which would not permit the extinction of the debt by the middle of the next century, but would rather tend to increase it. In order, therefore, to avoid too great annual deficits, the federal administration would have to work the railroads in a spirit of the strictest economy, and instead of reducing rates might have to raise them. There were no provisions in the law to prevent this, all propositions to insert them having been rejected.

MM. Droz, Steiger, and those who agreed with them held, therefore, that the purchase would be a bad financial operation for the state. And, then, would it not be dangerous for a small country like Switzerland to contract an enormous debt which it would be difficult to extinguish and of which it might at most only pay the interest? Might not the existence of considerable obligations, partly held abroad, compromise the financial independence of the confederation? Why run these risks when the necessity of economizing might prevent the confederation from fulfilling the promises of which the partisans of purchase had been lavish in its name?

Some of the other arguments urged in the discussion were less legitimate, and some appealed to prejudices which exist, it seems, in Switzerland as well as in America, against corporations and foreign bondholders. The campaign was one of the most exciting that had been witnessed for a long time in the republic. During January and February, 1898, public opinion was occupied with no other question. Numerous public meetings were held in all the cantons, pamphlets were freely circulated, and the newspapers took a very active part in the matter.

The vote was taken February 20th. Out of 734,000 citizens entitled to vote, 570,000 exercised their right. The result was a surprise to all. The measure was carried by a vote of 386,634 to 182,718, 200,000 majority, or by more than two to one, when few anticipated a difference of more than 50,000 or 80,000, and some persons considering themselves well informed thought, even the day before the voting, that the scheme would be rejected.

Only a year before—February 28, 1897—the Swiss people had voted against a project for a state bank which had been recommended to them by the same parties that advocated state railroads. Still, we can not infer from this that the people have reversed their position and favored a state socialism this year which they rejected last. The motives that determined their vote seem to be of a different order. The majority of the electors evidently regarded the railroads as a public service of the same kind as the post office, telegraph, etc., and sought to remove all private influences and sense of personal benefit from their management, as well as to free it from foreign influence. The mass of the people trusted to the promises held out of reduction in rates and improvements in all the features of the service. The men employed on the roads exerted a strong and solid influence in favor of the purchase, because they believed they would fare better in the hands of the state than under private owners.

By the vote of the 20th of February the Swiss people have made a decision of extreme importance, which will be certain to react upon the whole political, economical, and social life of the country. It is now for the federal council to see the law carried into effect. On the 2 2d of February it withdrew the concessions from a part of the Northeastern lines. If the repurchase goes on successively according to the terms of the concessions, the confederation will secure possession of the Jura Simplon, Central, Northeastern, and Swiss Union systems in 1903, and of the St. Gothard in 1909. For the purchase of the St. Gothard, negotiations will have to be gone into with Germany and Italy, which furnished considerable subsidies for the construction of the line; and it is further possible that the confederation will secure possession of the whole network before 1903 if it decides to negotiate with the companies, as the law authorizes it to do. If it does not do this, and does not succeed in coming to an understanding as to the price, the federal tribunal will be called upon to decide important questions relative to the calculation of the indemnities to be paid to the stockholders.

The experiment which Switzerland is trying is certainly very instructive. It will be interesting to observe how the confederation