Printer Friendly

Railway pooling in Britain before 1900: the Anglo-Scottish traffic.

In this study of a neglected topic, Dr Channon examines the attempts of British railway leaders to regulate competition among routes. Drawing illustrative material from the management of Anglo-Scottish traffic and making comparisons with the American railroad industry, Dr Channon concludes that pooling agreements did not provide the long-term stability and savings that railway managers sought. Changes in traffic patterns led to dissatisfaction with pool allocations, and competitive pressures from outside, as well as legal and political uncertainties, undermined confidence in the pools. In contrast to the United States, where railroads were able to turn to consolidation after pooling had failed, in Britain this strategy was not a politically viable option.

The efforts of American railroad leaders to stabilize their industry have been featured prominently in the writings of historians, who have noted that competition among companies increased as the railroad system in the United States expanded and became more integrated.' To control this competition, managers sought first informal alliances, then more formal federations. But by the early 1880s even these limited arrangements were encountering administrative problems, disagreements over the pooling and allocating of income, and in particular the crushing pressure of high fixed costs. Albert Fink, the leading figure in the pooling movement in the United States, and other disillusioned representatives of the railroads turned to government to legalize pooling, but they met instead growing opposition: the Interstate Commerce Act of 1887 made pooling illegal, and the 1897 and 1898 Supreme Court interpretations of the Sherman Antitrust Act (1890) banned rates agreements as well. With these possibilities foreclosed, railroad managers resorted to building huge, self-contained systems, which helped to stabilize the industry after the depression of the 1890s. The increases in the scale and concentration of railroads can therefore be seen as responses to competition and to the failure of cooperative devices to check it. Had pools been legalized, the outcome might have been quite different, In contrast to the American story, the endeavors of British railway leaders to stabilize their industry have been relatively neglected in the historical literature. The pattern of their responses differed somewhat from that found in the United States, for no clear-cut sequence, running from informal cooperation to large-scale consolidations, occurred. From the early years of the industry, railway leaders had to contend with the problems of internal and intercompany administration, competition, and, as they saw it, political interference. The development from 1842 of the Railway Clearing House to promote intercompany exchanges of through traffic occurred in the context of an industry in which oligopolistic, and more commonly duopolistic, competition was widespread, and where the level of concentration was already high. By 1850 the four leading companies were taking 41.7 percent of gross traffic receipts in England, Wales, and Scotland, and the twelve leading companies accounted for 73.5 percent; by 1870 the corresponding figures were 46.3 and 82.3 percent, respectively 3The typical form of competition varied over time: price competition reached a peak in the 1850s, followed by competition for urban terminals, and after 1870, by service competition.

Corporate strategy was rarely, if ever a matter of market calculation alone,, for railway leaders also sought to influence, anticipate, and respond to the variable requirements of the state. Because railways owed their corporate existence and powers to Parliament, they were inevitably drawn into competitive struggles there, jealously seeking to guard their separate territories from potential interlopers. Their ongoing visibility within Parliament also made them peculiarly vulnerable to the imposition of controls, should the political culture of the time demand them. A shift in that culture occurred in the late nineteenth century, when the railway companies, like their counterparts in the United States, came to be portrayed by their smaller-scale business clients as powerful monopolists who maintained rates at artificially high levels. The companies listened, adjusted their operating policies to correspond to a "public service" image, and consequently had to live with lower levels of profitability.

Companies' options for collective action were also increasingly circumscribed by Parliament's view of the industry Parliament's rejection of several major amalgamation bills in the early 1870s seems to have persuaded railway leaders that large-scale merger would not win parliamentary approval, and that such attempts might, in fact, arouse unwelcome scrutiny This perception helps to account for the relatively stable level of concentration in the industry before the state-induced consolidations brought about by the 1921 Railways Act. Railway leaders after 1870 therefore had to rely on less formal and often less stable ways of regulating competition among themselves, including the rates and pooling agreements that proliferated at the time. Did such agreements secure the stability that British managers sought and that clearly eluded their American counterparts?


A considerable task confronted nineteenth-century railway managers. They faced markets for transport services that were far removed from the hypothetical world of perfect competition; indeed, their world was inhabited by relatively few obvious rivals, which meant that the determination of prices and supply was inevitably a complex process. Managers had to try to anticipate the reactions of rivals to their policies knowing that such maneuvering would itself affect the outcome. Although oligopoly is clearly about conflict, it is possible to regulate it, as Robin Marris shows in his vivid analogy between the competitive game and animals fighting over terr"each participant is trying to tell the other how vicious he is able and willing to be, and thus build up the mutual information necessary for both sides to realize that a cooperative solution along given lines will maximize utility for each."

A popular cooperative solution adopted in the railway industry was the rates agreement. Price competition was virtually dead by 1870, and numerous rates conferences protected the peace. 6By setting common rates, fares, and charges for particular destinations among the participating railways, rates agreements removed some of the uncertainty that managers faced in the unregulated situation, They offered, moreover, a context in which these prices might have been raised in unison to maximize the revenue of all the participating companies. The implementation of uniform rate hikes, however, was possible only if railway managers faced (and recognized) both an inelastic region of the demand curve and little risk of far-reaching political reaction, Competition from coastal shipping for particular traffics tended to undermine the first condition, especially after 1870, and the risk of political intervention increased as the pricing policies of railways aroused critical public scrutiny and eventual regulation.

The rates agreements nevertheless provided some advantages. By charging all customers equally for equal services, railways deflected some of the criticism that they practiced rate discrimination ("undue preference"). Moreover rates conferences did prevent the outbreak of price wars during the 1850s, and to that extent they were a stabilizing influence. Companies had incentive to cheat-to set prices below those mutually accepted-only if agreement prices were high, if customers responded quickly, and if such undercutting went undetected by the other members. The Railway Clearing House, which acted as accountant for the companies' business with each other and as an impartial arbiter, played an important role in providing an efficient mechanism for the detection of cheating members. 7

The achievements of rates agreements were limited, however, not only by external political and competitive factors, but also by the intrinsic nature of such agreements: they did not contain a mechanism to deter nonprice competition. Since rates were identical, the lines offering the fastest service, the shortest routes, and the best-located terminal facilities wvere certain to take the lion's share of the business, creating an incentive for the weaker lines to cut rates, to offer rebates, and generally to attempt to circumvent the agreements. Although resort to the naked rates competition that in the mid-nineteenth century had led to rates wars was rare after 1870, service competition was frequent and played some part in the long-term decline in railways' net returns.

In theory at least, pooling agreements offered a solution to the kinds of nonprice competition not addressed by rates agreements. A pool also set rates and fares,but it also provided an arrangement for the division of traffic receipts among companies according to a prearranged schedule. The schedule ;%,as usually based on the existing distribution of traffic, and the duration of the agreement was fixed in advance. Because both rates and market shares were predetermined, members had no apparent incentive to engage in service competition with one another or, for that matter, in competitive investment. Moreover, pooling arrangements involved no loss of corporate identity.

Although pools became very widespread only in the late nineteenth century their pedigree can be traced at least to the post-"mania' period of the 1840s and 1850s. New agreements appeared in clusters: in the late 1840s and early 1850s, the late 1860s, the mid-1880s, the early 1890s, and the beginning of the twentieth century The most general explanation for this pattern is that pools were formed to counter the effects of overcapacity and falling net returns from capital invested or traffic carried. From the 1870s, as mergers fell into parliamentary disfavor, pools became commonplace as they came to be regarded as an important alternative, Richard Moon, chairman of the largest railway company, the London and North Western, which had strongly promoted pools in the early years, said in 1886 that they "divided traffic in 'all directions with other companies"-a statement that the records readily confirm. A pattern of pool mortality is less easy to identify, but like American pools many fell apart, in particular those in existence before 1870."

ANGLO-SCOTISH POOLING AND THE LAW Probably the largest, most ambitious, and best-documented pool of the mid-nineteenth century was the English and Scotch (1856-69), the main focus of this article. This was the direct successor of the more limited "Octuple" and "Sextuple" pools of the period 1851-55, which had been initiated by the West Coast interests, led by the powerful London and North Western Company and its forceful general manager Captain Mark Huish, in an attempt to protect their domination of Anglo-Scottish traffic. The main intention was to contain the growth of the recently opened Great Northern, whose line between London and York promised to enhance the competitive position of the East Coast companies. Huish's tactics were simple: make exclusive treaties with key feeder lines, block the Great Northern's expansion, and then negotiate pooling agreements based on recent market shares. This strategy effectively blocked the East Coast companies from Glasgow, a valuable source of Anglo-Scottish traffic, while the West Coast maintained its very strong interest in Edinburgh. The Octuple and Sextuple pooling agreements were concluded in 1851, when there was a general vogue for retrenchment, economies, and intercompany cooperation in the wake of the over-expansion of the 1840s mania. The relative financial weaknesses of the East Coast lines inclined their inexperienced leaders toward cooperation, even at the cost of short-term sacrifices.

The short duration (five years) of the two pools of 1851, combined with some uncertainty about their legality, encouraged railway leaders to ignore those provisions that in their view unduly restricted company growth and long-term prosperity The East Coast companies began to cooperate more closely at the operational level, and they sought to raise the visibility of their route among potential traders and passengers by running a more comprehensive service than the current level of demand justified. To secure access to Glasgow and to the north of Scotland, East Coast companies agreed, beginning in January 1855, to pay "mileage bonuses" to two companies, the Edinburgh and Glasgow and the Scottish Central, that had earlier been associated with the West Coast lines. With low load factors and low rates in certain cases, the Scottish companies would have received an unsatisfactory rate of return on traffic receipts if the revenue had been divided on the usual equal mileage principle; the bonuses simply reflected operational and diplomatic realities. The East Coast's market share grew substantially as a consequence of these policies, and the route's improved position was in some measure reflected in the division terms of the English and Scotch Agreement.

This agreement, signed in 1856, was more extensive in both its temporal and its geographical coverage than the earlier pools; it was to be valid for fourteen years, and it included the nordi of Scotland. It provided for the division of all traffic receipts, except those from mail and from coal and its derivatives, for the area between London and Edinburgh, Glasgow, and the north of Scott and. In the first instance, seven companies took part: the London and North Western, Lancaster and Carlisle, and Caledonian (West Coast route); the Great Northern, North Eastern, and North British (East Coast route); and the Midland. It is estimated that by the mid-1860s the pool's annual transactions amounted to nearly fl.5 million or about 7.6 percent of members' working receipts. A study of the English and Scotch Agreement's history should reveal how far the potential of the pooling principle could be realized under the conditions that faced nineteenth-century railway leaders.

The legality of pooling agreements was uncertain in 1856 and remained so for at least five more years. Parliament did not confer explicit general powers on companies to enable them to take part in pools, but neither did it try to restrict, control, or prohibit their doing so. The vast majority of pools were devised without reference to Parliament or, for that matter to the Board of Trade, the civil service department responsible for railway matters. Three reasons may be suggested for this apparent lack of official interest. First, because pools did not produce a change of corporate ownership, the legal status of the member companies was not affected. Second, there was often no question of public safety, for a pooling agreement did not as such involve changes in the mode of railway operations; when a pool was combined with a working agreement or with a union, then Board of Trade or parliamentary approval was needed." Third and most pertinent, through its methods of operation a pooling agreement was thought to come within the scope of a variety of public general acts designed to regulate railway activities, as well as of the special acts that constituted and incorporated individual railway companies.

The legal status of pools dealing with competitive traffic was, however, by no means cleat Deep uncertainty prevailed among railway leaders about whether a pool's provisions could be enforced against a recalcitrant member As the chairman of the Great Northern Railway observed in 1856, "It [the English and Scotch Agreement] is therefore, in truth an agreement which all the parties may observe as long as it pleases them, but not a day longer."" Vice-Chancellor Page-Wood's judgment in favor of the Anglo-Scotch pool in a case brought against it in 1861 helped to clarify some, but not all, of the issues. He decided that the handing over of money earned by one company to another came within the implied powers of a company when such action could be shown to be in the interests of the shareholders. As to whether the pooling agreement contravened any general public act, Page-Wood handed down a ruling that became the standard reference during the next fifty years: "I can see nothing that can be founded on the supposed injury to the public from the prevention of competition.

Page-Wood's judgment did much to resolve some of the earlier uncertainties. Pools appeared to be legally enforcible and therefore attractive from management's point of view. However, two important situations remained unresolved and still tempered managers' confidence in pools. If it could be shown that a company was consistently paying over large sums of money to other pool members for traffic carried in excess of its agreed share, the shareholders could probably impeach the agreement and ask for an injunction. The second problem, which actually did provoke a legal dispute, arose from the construction, by a member of a pool, of a new competing route not mentioned in the agreement. Once more it was the English and Scotch pool that provided the formative dispute, case, and judgment. When the Midland Railway in 1866 challenged the right of the pool to divide the traffic from the Midland's new "Middle Route" to Scotland, Vice-Chancellor Kindersley found for the company He decided that the 1856 agreement did not state specifically or by implication that another route should be subject to its provisions: "If it was in the minds of the framers it was hardly conceivable that they should omit it. . . ."20 This was a damaging decision for the English and Scotch pool and for the industry in general, for it meant that pooling agreements could not easily be used as a brake on the development of new or improved competitive routes.

NETWORK CHANGES Network changes indeed threatened the stability of existing pools and inhibited the formation of revised or new ones, as can be seen in the management of the Anglo-Scottish traffic. The easing of financial conditions after the terms of the 1856 pool had been negotiated encouraged member companies to devise ambitious plans that threatened the pool's distribution of traffic. Not all of these plans were directed solely at transborder traffic, but they all impinged on it, and two construction schemes, which contributed toward the new Middle Route, were justified largely in terms of transborder traffic: the Border Union line promoted by the North British in 1859 and the Settle and Carlisle line promoted by the Midland in 1866. Other changes in territorial power such as the Scottish mergers involving the Caledonian and the North British in the mid-1860s and the plans to span the Tay and Forth estuaries, similarly created a sense of deep uncertainty about future traffic shares. 21

It can be seen that disruptive construction schemes and mergers were facilitated by easier financial conditions, the passivity of shareholders when faced with improved returns and credible railway leaders, and the inability of the pool to use legal sanctions to check expansionist ambitions. Yet the explanation becomes more complicated as one looks closer The general availability of capital was undoubtedly an important necessary condition, but no simple relationship exists between financial security and the rates of expansion experienced by the various companies involved in Anglo-Scottish traffic. In fact, the worst performer in the old issues market, the North British, grew the most rapidly. The need for "flow" to justify earlier outlays on lines and facilities was an important influence, as was the considerable size of the transborder traffic market.

Part of the explanation, however, must be rooted in the individual and collective assumptions, goals, and persuasive powers of railway leaders, who were often willing to undermine the stability of the pooling agreements, and even the financial foundations of their own companies, in order to expand their route structures. If one examines the Midland Railway's extension from Bedford to London, which was approved by Parliament in 1863 and which strengthened the position of the Middle Route, one can argue that the pursuit of independent, great-power status was the dominant motive and that the general manage , r James Allport, was the most influential figure. In the case of the North British, though the location of power was different, it appears that the overall goal may have been similar Here the prime mover was the company's chairman, Richard Hodgson. In the twelve years of his chairmanship, Hodgson seemingly gained complete control over strategic decision making. A contemporary critic noted "Having practically supplanted the Board he has been able to execute his designs without tbeir advice, cheek or even knowledge. . . The officers without whose active and intelligently directed energies no railway undertaking can prosper, have been reduced to mere instruments." The credibility of Hodgson's warnings about the threat of the Caledonian and other companies and the need for "preemptive strikes" to defend North British interests must be counted as important factors in the passive support that the shareholders gave to the expansion program. Some shareholders were prepared to advance further capital in the hope that it would be used to protect and enhance the value of their existing holdings. As the company's commitments grew and outstripped its current earning capacity, Hodgson raided the capital account in order to pay shareholders and lenders and to raise the additional capital needed to complete existing projects. A crisis arose when the flow of capital into the company was severely reduced during the financial crisis of 1866, bringing it near bankruptcy. The shareholders rose up and appointed a committee of investigation into the company's affairs. Upon the publication of the committee's highly critical report, Hodgson, together with eleven of the fifteen directors and the chief executive,resigned.

The impact on the pool of territorial changes such as these was to reduce the revenue divided among the members and to undermine negotiations for a revised agreement. For instance, it is estimated that the development of the Middle Route and the legal confirmation in 1866 that its traffic was not covered by the 1856 agreement meant that perhaps f240,000 a year no longer came within the pool's jurisdiction in the mid-1860s. As the 1869 termination date of the pool approached, the East Coast companies were receiving about 8 percent more of divided receipts than if a simple equal mileage division had been in operationthat is, the West Coast companies were carrying more than their agreed share. This situation was mainly the outcome of West Coast efforts in those areas of the north of Scotland affected by the Caledonian's territorial gains during the recent minor mania.

In the negotiations to extend the Anglo-Scotch agreement, the demands of the Middle Route companies exceeded the sacrifices that the established routes were willing to make. A profound disagreement arose between the established routes about the scope of the new pool: the East Coast companies, anticipating that as a consequence of the Caledonian's mergers there would be a consolidation of West Coast power in the north of Scotland, wanted that region to be included, whereas the West Coast companies did not. The companies were still agreed, however, that price competition was to be avoided, and they were therefore prepared to take part in a rates conference, but the instability of the route structure made renewal of the Anglo-Scotch pooling agreement impossible.

Seventeen years later, in the second half of 1886, the leaders of the major English railways north of the Thames once again explored the possibility of a collective approach to railway operations. They wanted to find ways of countering the decline of the operating ratio, low net returns on capital invested, and falling dividends. In contemplating the prospects for large-scale pools among competing routes, railroad leaders took the view that in the economic circumstances then current major new routes had less likelihood of being developed than in the past, an assessment that proved to be broadly accurate. Fundamental improvements in old routes could, however, create the same atmosphere of uncertainty that had made negotiations difficult in 1869. Railway leaders understood, for example, that there was little prospect of agreement on a new transborder pool until the bridges spanning the Tay and Forth estuaries of eastern Scotland were opened. Further, improved company finances in the late 1880s revived the flagging spirit of competition, especially with respect to prestige passenger services. Its most vivid manifestation was the "races" of 1888, the competition among companies to offer the fastest service. Efforts to reintroduce a transborder pool failed in 1892 and again in 1893, a year of severe depression in the industry as a whole. On each occasion railway leaders were anxious to control the number and speed of passenger trains; the "races" of 1895 to Aberdeen testify to their failure.

The crux of the problem was that, insofar as the division schedule was likely to be based on past performances, the newcomer was penalized. The Midland's accountant, W H. Hodges, in a blistering 1893 critique of pooling practice, argued that the company had a right to its "proper share of the Scotch traffic having entered the field years after [its] competitors. Any pooling agreement based on present earnings would deprive the Midland of its proper share of the future '"29 It seems that the Midland's expansion strategy was as dominant in the 1890s as it had been nearly forty years earlier when the company had begun to develop its middle route to Scotland. Such expansionist policies contradicted the desire for stability that railway managers claimed. In the face of this ambivalence, pools were not able to provide enough control to convince managers to compromise their own market shares.


The network changes and the legal decision in favor of the Middle Route that weakened the English and Scotch pool from the early 1860s were accompanied by a progressive increase in service competition. As mutual suspicion became rife, railway leaders worked toward the creation of independent facilities. Agents, canvassers, and carters were dispatched -for each route to Scotland, and joint carriage stocks, designed to create a sense of route identity, were introduced. 30 The process intensified as the end of the pool approached. Members were jockeying for strong positions in readiness for the bargaining that might follow or, if that broke down, for open competition. Increasingly the pool looked like the rates agreement that succeeded it, though each competing bloc held something in reserve until the pool had actually collapsed. It is clear, for example, that trains were not being operated to their full technical capacity, so at least a "race to the north" of the sort that came later was avoided. Moreover, managers could look back to the early years of the pool when there had been some progress toward the reduction of duplicated facilities. Provided managers had some confidence that the pool would survive, they were prepared to attempt to "tune" their separate activities to produce market shares that approximated those in the division. And for a time this was achieved: in 1860 the East Coast companies reported that the traffic "had been carried for the last two years as nearly as practicable in the proportions named in the Agreement."

Any route carrying above its allotted share was penalized by the e mechanics of the pool, which set below-cost allowances of 30 percent for goods and 20 percent for passengers for the working expenses incurred. This penalty had less force once members began to anticipate the pool's disappearance, because although the allowance did not cover variable costs in full, it did contribute something. Perhaps more might have been achieved had managers been prepared to create an independent bureaucracy of officials working exclusively for the pool and striving to increase the size of poolable receipts. As it was, they were unwilling to relinquish their autonomy, preferring instead to promote collaboration among lines sharing the same route. Although the Railway Clearing House played an important role as the neutral accountant for the pool's business, it was not designed to be a marketing organization.

Network changes and service competition among members of the English and Scotch pool were not the only forces that limited the realization of the pool's potential. The intrinsic problems of particular traffic flows, including seasonal fluctuations and imbalances between "up" and "down" train loadings, also curtailed the pool's effectiveness. The live cattle trade between Aberdeen and London, for example, peaked in the winter, and more goods overall (in both volume and value) were carried south than the other way. Certain competitive constraints, different from those discussed so far, helped to define the savings that were possible and the extent to which the pool could follow the pricing policies of a discriminating monopolist: the competition for intermediate traffic not covered by the pool, "market competition:' and coastwise shipping competition.

The passenger superintendent of the London and North Western Railway, G. P Neele, explained the difficulty that could arise over intermediate traffic:

It must not be understood that the English and Scotch Committee are to control our local fares-which we must regulate ourselves to meet competition from other companies not parties to the Agreement; and also to meet public convenience and the accommodation of the local traffic. It will, however, be fully understood . . . that we shall take care to base our charges so that they will not interfere with the rates and fares fixed by the English and Scotch Committee without giving notice to that effect.

Which was to prevail in the event of a disparity-the company or the pool? The problem arose in an acute form shortly after the English and Scotch pool had been formed when three member companies became locked into fierce competition for the traffic between London and the north of England. The pool's customers were able to make a saving by rebooking,which undermined the pool's price structure and reduced the amount of poolable revenue. Through the persistence and conciliatory spirit of the chairmen of the companies outside the conflict whose business was affected by it, the opponents were brought to the negotiating table and aggressive managers, like Mark Huish of the London and North Western, were brought to heel by their boards of directors. The transborder price structure was not allowed to collapse,, although adjustments were made. Indeed, by maintaining its prices and by demonstrating some of the possibilities of intercompany cooperation, the pool sex-ved as an important stabilizing influence. The pool was also conscious of the needs of differently located suppliers within its sphere of influence who served a common market. Certain stations were "grouped" for the purpose of rate determination. Often the pool did not have an entirely free hand, for it faced market competition from traffic originating outside its sphere of influence but directed toward markets in which its customers also had an interest. For places like London, well-served by railways outside the pool, managers had to be particularly watchful.

Competition for long-haul traffic between railways and seaborne carriers before 1914 was more widespread and enduring than historians have previously appreciated. Since all the major centers of population in Britain were either ports or close to the sea, this is perhaps hardly surprising. For the transborder pool and its successor, the rates conference, seaborne competition was of paramount importance. It is estimated that in the period 1856-69 coastal shipping may have carried 7.7 times more tons of goods than the railways between London and Edinburgh and Glasgow (together) and earned 2.6 times more in gross receipts. 36 Seaborne competition was a controlling factor in decisions about heavy, low-value goods, third class passengers on certain routes (for example, Liverpool to Glasgow), and livestock. Its existence induced railway managers to uphold a high standard of service for certain areas of business, such as the Aberdeenshire beef trade with London.

Coming to terms with the coastal shipping interests on a long-term basis proved to be very difficult, although some limited progress was made. Ship operators feared that cooperation with the railways would quickly invite the attention of their rivals, who would move in and offer lower rates. As T H. Farrer put it in 1872, "Ships can be built and ships can be brought from one port to another port. The sea is the great free trader." Further, outside "feeder" railways were in a position to offer traffic to the ships rather than to members of the pool. Disloyal members might similarly exchange traffic with seaborne carriers-at intermediate points-with the same effect: a loss of divisable revenue. The first became less of a problem once feeder lines in Scotland were absorbed by member companies; the second became more evident from the early 1860s when such-activity signified a general disenchantment with the 1856 Agreement. The North British Railway became involved in a regular exchange of goods traffic with the steamers operating between Silloth (Carlisle) and Liverpool.

Despite the competitive factors discussed here, the English and Scotch pool did bring thirteen years of virtual freedom from direct price competition for transborder traffic, even if behind the veneer of cooperation there lurked powerful price leaders (like the Midland from 1860), companies that were prepared to bully and threaten in order to achieve the rates they wanted. In the 1850s when rates wars were endemic, the pool's relative success was a major achievement. Rates may not have been higher because of the pool, but they were certainly more stable.

This experience of cooperative rate-making was not allowed to disappear when the pooling agreement terminated in 1869, The pool was succeeded by the English and Scotch Rates Conference, a durable arrangement that operated continuously through the consolidationsafter the First World War As its name implies, the conference dealt with the pricing of traffic carried between England and Scotland. Managers did not have a precise idea about the profitability of particular routes and types of traffic, either during the pool or after its demise. However, it does seem that after 1869 there was an upward spiral of expenditure on transborder traffic as the three main competing routes expanded their efforts to keep ahead. The most visible examples were to be found in the conduct of the passenger business. In the first half of the 1870s there was a substantial improvement in the amenities provided for passengers, as well as increased expenditure on the carriage stock owned by each route. By the end of the 1880s, 360 jointly owned vehicles were in use on the three routes, and there is evidence that companies were spending more on these vehicles than on those used in their own networks. The most dramatic displays of competition, however, were to be found in faster running schedules for passenger trains, in particular the so-called races of 1888 and 1895.

A less visible but equally pernicious form of nonprice competition occurred when feeder lines discriminated in favor of one route against another As feared in 1869, two of the routes (the Middle and East Coast) encountered such difficulties in their dealings with companies in the north of Scotland that had merged in the mid-1860s with the Caledonian Railway, a partner in the West Coast route. There were frequent complaints that those clauses of the merger acts that had been inserted to protect the interests of the other routes were being violated. Although the East Coast Conference made apparently successful appeals to an arbitrator in 1870 and to the Railway Commissioners in 1876, the conference's minutes nevertheless continued to be littered with grievance S.44 To detect breaches and more generally to promote its traffic, the East Coast Conference employed a growing number of agents and canvassers in Scotland, as did the other routes. At the same time, in the perpetual struggle to defend and improve the flow of traffic, companies were prepared to pay secret bonuses to feeder lines. The Great Northern and North Eastern railways had such an arrangement with the North British, and the Midland in the early 1880s was paying around f86,000 a year to keep the Glasgow and South Western cooperative. Plainly the attempts by Parliament to control intercompany discrimination, either through the acts defining the powers of particular companies or through general legislation, met with limited success. Railway leaders knew that rates agreements by their nature could not contain nonprice competition, but they were equally aware that pooling agreements had not offered a complete solution. Was there an alternative?


The discussion so far has centered on the pooling of traffic receipts among competing routes and competing companies. But there was also a more extensive type of pool, often called th "common" joint" purse, which involved the pooling of all the receipts of two or more companies. It was sometimes used as the prelude to outright merger. By taking in competitive and local traffic, an extensive common purse might have solved some of the problems encountered by more limited pools, in particular those arising from the competition for traffic supplied by feeder lines, competition for intermediate traffic, and "market" competition. The institution of the common purse was one of the options that railway leaders from companies north of the Thames seriously considered but eventually rejected when they met in 1886 to discuss their problems.

These men were concerned in particular about falling returns per train mile. The "great speed" of express trains, for instance, carried a "very serious and unnecessary expense." Sir Daniel Gooch, chairman of the Great Western, believed that, given a binding agreement, the companies "could easily make from 20 to 25 per cent reduction in [the speed of] their trains and serve the public equally well'" But would the public agree? In 1886 railway leaders had before them a proposal much broader in its scope and implications than anything that had been contemplated before. If executed it would have meant, in the words of George Findlay, "a complete revolution in railway matters'" There were, however, several major difficulties with the proposal. First, agreement on the basis of the division had to be secured: should it be related to the tot-al traffic receipts of each company over the past few years, as Findlay proposed, or to net receipts? The general manager of the Great Western, James Grierson, opposed the total receipts method because "the Great Western Company bad been working their railway in the most economical manner possible, while other companies had been spending money more freely and thereby securing a larger percentage of the traffic than they would otherwise have done." Second, such an extensive common purse would have required the subordination of the respective managements to a controlling power in important matters, including pricing, services, and investment, a concession that most, if not all, managers were unwilling freely to make.

But perhaps the decisive factor, given the political climate of the time, was that the proposal implied the complete abandonment of the competitive principle and the substitution of what the railway managers called "regulated monopoly." The managers believed that direct parliamentary authority would be needed, but the timing was hardly propitious: criticism of the industry was widespread, the influence of the "railway interest" of parliamentary directors was weakening, and it was expected that the new Conservative government would introduce a measure to increase official control over railway rates. The public, they believed, would have to be taught that competition meant higher prices, but such education. would take a long time.

The assembled leaders concluded that the most probable outcome of attempts on their part to institute a common purse would be the establishment of a quasi-public body, consisting of representatives from the companies, the Board of Trade, chambers of commerce, and other trade associations, to administer it. They still considered this too high a price to pay for stability Only after a longer period of decline, in the early twentieth century, did the idea of the large-scale common purse again receive serious attention.


From the evidence offered here it seems that the initiative for setting up large-scale pools among competing routes in Britain came from established companies that were keen to protect their market position in the face of potential or actual competition from newcomers. Agreement was easier to secure in periods when all companies were facing depressed returns. Because a pool represented a static response to a dynamic business environment, the basis of the original division was undermined and challenged as the relative positions of the members shifted. In a period of changing networks and expanding traffic, such pools were therefore unable to realize their full potential. However, when railway leaders were confident about the survival of their arrangements, usually in the early years, they were able to make some economies. As the end approached they sharpened their competitive activities, which led to an increase in operating costs. The prospects might have been brighter if stronger legal sanctions against the development of new routes had been available, but they were not.

Even if pools had had a more secure legal footing, however, they would still have had to contend with outside competitive pressures, augmented after 1870 by the hostility of the traders and Parliament. This hostility, and the threat of more government interference in the affairs of railway management, caused railway leaders to tread warily in making largescale agreements among themselves to restrict supply In fact they reacted to public criticism by increasing services while attempting to maintain rates. In spite of these problems, progress was made in the late nineteenth century in the formation of more limited pools, covering the traffic of a particular town, district, manufacturer, or commodity. Such pools, together with the numerous rates agreements of the period, did provide some stability, but they did not, as railway leaders stressed, produce the savings that they desired.

After 1900 the major companies reopened the question of large-scale pooling along the lines of the common purse. Then, like their American counterparts in the 1880s, they sought official approval for their arrangements. But as Peter J. Cain has shown, because of the intensity of opposition from Parliament, the traders, and their own employees, the companies retreated from the public limelight and tried to continue their arrangements in secret. Hence., before 1914 British railway leaders were unable to secure the state's support in any of their efforts to regulate competition in the industry: large-scale mergers were frowned on, and pools and similar devices had to operate near the margins of legality This outcome differed significantly from events in the United States where, after being rebuffed in their attempts to legalize pooling, railroad leaders were able to turn voluntarily to formal consolidation, a solution that some had favored from the beginning. It required the disastrous effects of the First World War on the industry's finances finally to persuade British business and Parliament that only through compulsory merger offset by increased public control would the industry be able to survive. Railway leaders were inclined, reluctantly, to agree.
COPYRIGHT 1988 Business History Review
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1988 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Channon, Geoffrey
Publication:Business History Review
Date:Mar 22, 1988
Previous Article:The Canadian securities market, 1850-1914.
Next Article:Corporatism in comparative perspective: the impact of the First World War on American and British labor relations.

Terms of use | Privacy policy | Copyright © 2022 Farlex, Inc. | Feedback | For webmasters |