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means of the Oregon Short Line. The HillMorgan lines are west of Minneapolis to the Pacific by a northern route, the Great Northern and a route through southern South Dakota and Montana, the Northern Pacific. These territories are comparatively distinct.

The origin of trouble was the rumor that the Chicago, Burlington and Quincy was to construct a line to the Pacific Coast, or would connect with Senator Clark's new road from Salt Lake City west. As this road is a competitor in the same territory with the Union Pacific, the Harriman syndicate tried to buy a controlling interest in the Burlington. In this they were opposed by the Hill-Morgan interests on behalf of the Great Northern and Northern Pacific. In the fight which ensued for control of the Burlington the Union Pacific issued bonds convertible into stock in order to raise money to buy Burlington stock. The Great Northern and Northern Pacific issued joint 4 per cent. bonds and offered to exchange them 2 to 1 for Burlington stock. The result was the victory of the Hill-Morgan group, which desired to lease the Burlington to the Northern Pacific to operate in harmony with the Great Northern, and thereby greatly enlarge the sphere of their operations and give them an entrance into Chicago. To prevent this the Harriman syndicate, which could not secure control of the Burlington, directly began to buy Northern Pacific stock, thinking to control that road and through it the Burlington. No sooner was extensive buying of Northern Pacific noticeable on the stock market than the Hill-Morgan interests took up the renewed contest and bid sharply in opposition to safeguard their position. In the resulting struggle shares were cleaned up from small holders and massed in the hands of the competitors. It was an accident in the campaign that speculators unwittingly contracted to sell them more shares of the coveted stock than were in existence outside the contestants' hands, and thus, when delivery was insisted on, a corner was created.

The events of May 9 made necessary a truce to steady the market. It was agreed between Morgan & Co. and Kuhn, Loeb & Co. to refrain from any further stock market operations, and the principals in the matter agreed to the appointment of a board of arbitration to suggest a solution agreeable to the interests of both. The necessity for this arose from the fact that during the contest for «control the contending capitalists had invested millions of dollars in Northern Pacific stock purchased at a high rate, and although their money was thus tied up it was impossible to throw it upon the market again without causing a great fall in its price. This stock was held from May to November and, as has been said, “Each syndicate was in the condition of a man who caught a wolf by the tail; it could neither hold on nor let go with safety."

The result of the deliberation of Messrs. Hill and Morgan, Harriman and Gould and of Mr. Wm. K. Vanderbilt, who consented to act as arbitrator, is the creation of a holdings company which will take over the securities of both factions and administer them and the properties they represent along the lines of

some sort of compromise or harmony-of-interest policy.

The Northern Securities Co. was incorporated in New Jersey on November 13 with a capital stock of $100,000,000. Its charter empowers it to purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of any bonds or other securities or evidences of indebtedness or any shares of capital stock created or issued by any other corporation or corporations, association or associations, of the State of New Jersey, or of any other State, Territory or country, and, while owner thereof, to exercise all the rights, powers and privileges of ownership, including for shares of capital stock the right to vote thereon.

This company is now receiving the Harriman holdings, consisting of 41,000 shares of preferred and 37,000 shares of common stock of the Northern Pacific. Most of the remaining shares of this company will come to it from Hill-Morgan interests. It will also receive the 90 per cent. of Great Northern stock held by interests friendly to Hill. Since 98 per cent. of the $111,000,000 of Burlington stock is in Great Northern or Northern Pacific hands, the control of this road also will rest with the Northern Securities Co. The new company acquires these shares by exchanging for them its own shares. The ratio of exchange which holds good for 60 days is Great Northern common stock $180, Northern Pacific common stock (after the conversion of preferred) $115. The shares of the new company now being $108 and $110 on the market, with but little interest shown in them.

In regard to the future policy of this concern, persons on the outside can only conjecture. It is similar to the United States Steel Corporation in that it is a corporation of corporations to exercise power by virtue of owning a majority of the shares of its constituent companies. But to apply this idea to railways is an entirely new departure. The main purpose of the company may be simply to work off the securities which have become congested in a few hands onto the market again.

To accomplish this, it is said, Kuhn, Loeb & Co. and J. P. Morgan & Co. have perfected arrangements with European bankers. On the other hand, the company may be the instrument for operating a number of separate railway corporations under one control and according to a uniform plan. Referring to this aspect of the new company's purposes, we have the report that subsidiary businesses are to be consolidated. This refers particularly to the express companies.

The action of Governor Van Sant of Minnesota in sending letters to the governors of North Dakota, Montana, Nebraska, Washington, Idaho and Oregon asking them to suggest plans for concerted action to prevent the merger of railroads has created some discussion.

Those who argue against state control maintain that the Northern Securities Co. is not a combination of competing companies but is simply a holding company. The railroads will, as heretofore, be operated as separate corporations under separate management. It has been pointed out that this case is exactly the same as the control of two Minnesota ore roads by,

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the United States Steel Corporation. It is further urged that a powerful group of capitalists enforcing a harmony-of-interest policy over several roads, by virtue of majority holdings, can prevent rate cutting and secret rebates in rate management and can withstand speculative raiding of properties and prevent market fluctuations in the financing of the railroads under their control.

EDWARD D. JONES, Ph. D.,

University of Michigan. SHIP SUBSIDIES.—The question of ship subsidies is perhaps the most important subject of legislation that comes before the United States Congress during the present session. Not only in this country, moreover, but also in Europe this issue is assuming great importance. The British parliment appointed last April a Select Committee to inquire into the system of steamship subsidies under foreign governments and the effect produced on British trade. The French Chamber of Deputies debated last year a proposal to increase the ship bounties. In Italy a new subsidy act was adopted in No: vember, 1900. In Germany constant attention is given by the Imperial authorities to projects for developing the merchant navy. This widespread interest in ship subsidies is a natural result of the keen commercial rivalry among the leading nations, which is a marked characteristic of the present era. The western powers are struggling with one another for the domination of eastern and southern markets. In this international race for economic supremacy the possession of an efficient fleet of merchant vessels confers a great advantage. The encouragement of shipping, therefore, has been undertaken by the government in several countries of Europe.

FORMS OF SHIP SUBSIDIES.-Ship subsidies may be classified, as foilows: 1. Construction bounties to home builders, usually based on size and speed. 2. Navigation bounties to native owners, proportioned to tonnage, mileage and speed or cargo. 3. Special payments to certain companies, generally in return for definite services, such as the maintenance of regular connection with specified ports. 4. Postal subsidies—a special form of the third class, in which the service rendered is the carriage of mail matter. This last form of payment, which is the one most largely employed, is hardly to be regarded as a subsidy in the strict sense, when the amount paid does not exceed the actual value of the service. But in many cases the amount is excessive, representing a concealed gratuity. Besides direct payments, moreover, indirect assistance may be given to ship-building by exemption from import duties on materials of construction, and in other ways.

SHIP SUBSIDIES IN FOREIGN COUNTRIES.-1. Great Britain. Since 1839 Great Britain has pursued the policy of paying mail subsidies to certain steamship companies. The British government also grants subsidies of another kind, known as “admiralty subventions.” But no construction or navigation Hounties have ever been voted. The most important mail subsidies are the following: 1. United States mail subsidy, divided between the Cunard and the White Star lines, £130,000. 2. India, China, Japan and other eastern countries, paid to the

Peninsular and Oriental Company, £245,000. 3. Australia, paid to the Peninsular and Oriental and the Orient Companies, £170,000. 4. West Indies, paid to the Royal Mail Steam Packet Company, £80,000. 5. South Africa, divided between the Union and the Castle Mail lines, £135,000. There are other mail subsidies of smaller amounts. The admiralty subventions are paid to seven different companies on eighteen steamships, in return for the privilege of taking these vessels as naval cruisers in time of war. Thirty additional ships, on which no subsidy is paid, are also held at the disposal of the admiralty board. Certain conditions regarding the construction and manning of these vessels are stipulated in the subsidy contracts. The government does not, however, obtain the use of these subsidized ships free of charge. Payment at regular rates is provided for in the agreement. The admiralty subventions represent payments for the maintenance of a naval reserve, to be held in readiness for instant requisition. The amount of the admiralty subventions, $378,171, is small, compared with that of the mail subsidies, $4,177,597. The mail contracts are open to competition, and are framed, it is stated, with a view to getting full value for the amount expended. "The British mercantile marine," declares Jr. J. W. Root, "owes practically nothing of its enormous development to governmental assist. ance, and were this entirely withdrawn only a very slight percentage of the total tonnage would be affected.” The subsidies are confined to a few lines; the vast majority of the British steamship companies receive no bounties whatever. Some of the non-subsidized lines, moreover, earn larger dividends than those which are subsidized. The Leland Line, for example, paid eleven per cent. in 1898, while the Cunard Line paid about three per cent. The aim of the British subsidy policy seems, indeed, to be political rather than commercial. That is to say, the primary purpose is apparently not to benefit the shipping industry, but to establish communication with outlying parts of the empire on routes which it would be unprofitable to maintain without governmental aid.

2. Germany. The German Empire began to subsidize steamship lines in 1885. Germany, like Great Britain, pays no construction or navigation bounties. But large special pay. ments are made to the North German Lloyd, the German East Africa, and other lines, for certain services, including mail carriage. The first of these companies receives nearly $1,500,000 annually; the second about $300,000. A special contract with another company, the Woermann Line, went into effect at the be. ginning of this year, but the amount of the subsidy is not known. In these special con. tracts requirements are stipulated regarding service, speed, new building, passenger fares, and other matters. The subsidies granted are not regarded merely as payments for postal service, but as bounties to promote commerce, It is to be noted that only lines running to Australia, Africa, and the East are subsidized in this way.

Other companies, such as the American lines, are paid at the regular postal union rates for carrying the mails. In addition to direct pecuniary assistance through sub

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sidies, Germany gives indirect encouragement to shipping through (a) remission of import duties and reduction of freight rates on the state railways for materials used in ship-building, and (b) lower railway tariffs for all goods shipped from inland towns of Germany by certain steamship lines. It is believed that this system of special charges, combined with the subsidies, has been a potent factor in the recent expansion of German trade with Africa, Australia, and the far East. German exports to East Africa have increased five-fold since 1890, and imports have more than doubled. Much of the testimony given recently before the British parlimentary committee on steamship subsidies bore on the influence of the German bounties in promoting the growth of trade.

3. France. The subsidy system in France dates from the year 1881. At the present time France has the most extensive scheme of ship subsidies that is maintained by any nation. France expends nearly $3,500,000 annually on construction and navigation bounties and over $5,000,000 for mail service. The construction bounties are based on tonnage, and iron or steel ships are paid about twice as much as wooden ships. The navigation bounties are based on tonnage and mileage, with higher rates for sailing vessels than for steamships. For steamships fitted according to plans approved by the Marine and War Department special premiums amounting to twenty-five per cent. of the regular rates are paid. This thorough-going application of the subsidy policy in France has not, it may be remarked in passing, resulted in the development of a flourishing merchant marine. French shipping has increased somewhat during recent years, but not so rapidly as British and German shipping; it now represents less than four per cent. of the world's tonnage. It is contended, however, by the supporters of the subsidy policy that were it not for the bounties France would probably have no shipping at all. The French people, it is argued, are not naturally inclined to maritime pursuits and subsidies are required to maintain a merchant marine large enough to furnish men for the navy.

The annual expenditures for ship subsidies by Great Britain, Germany, and France are shown in the following table, taken from the report of the British Parlimentary Committee, 1901:

GREAT BRITAIN. Postal Subsidies.....

.$4,177,597.68 Admiralty Subventions

378,171.18 Jamaica Fruit Trade.

194,400.00 Canada and West Indies (half

Imperial and half Colonial).. 126,360.00

4. Other Countries.-Austria follows the German policy of special payments. The Austrian Lloyd Company receives an annual subsidy of about $1,200,000. The payments to other lines amount to over $350,000. Italy has a system similar to that of France, paying construction and navigation bounties to all home-built ships. According to the provisions of the new act, adopted last year, the total annual expenditure is not to exceed $2,000,000. Russia pays only postal subsidies; the amount expended is about $1,500,000 per annum. Japan adopted in 1899 a subsidy system embracing bounties of every kind and calling for an annual ex. penditure of nearly $3,500,000.

SUBSIDY QUESTION IN THE UNITED STATES. 1. DECLINE OF THE MERCHANT MARINE. Shipping was one of the first industries to which the American colonists devoted themselves. This was natural, for the colonies lay on the sea-board; the interior was held by the Indians; and the materials for ship-building were furnished in abundance by the forests that surrounded the settlements, So the principal industry in the early period came to be the building and sailing of ships. During the first half of the nineteenth century the shipping industry expanded rapidly. The United States secured a large share of the carrying trade of the world. The total tonnage of American vessels engaged in ocean carrying was, at the middle of the century, nearly equal to that of Great Britain. But about the middle of the century American shipping began to decline. The extent of this decline is shown by the fact that at the present time the United States owns only about nine per cent. of the world's tonnage, as compared with over fifty per cent. for Great Britain. The greater part of the American tonnage, moreover, is employed in the trade along the coast and on the lakes. Only an insignificant fraction of the ocean carrying business is done by American ships. The proportion of our exports and imports carried in American ships declined from 75 per cent. in 1855 to 8.2 per cent. in 1901. "Last year, in fact," said Senator Frye, in a recent address, "the climax of decadence seems to have been reached, the worst year in our history. In the trade be. tween the United States and Europe not one American vessel came from or went to Germany, Russia, Sweden, Norway, Denmark, the Netherlands, Italy, Austria-Hungary, Greece or Turkey. Two small vessels came from France, one of these in ballast, and one cleared from Spain. There entered or cleared from ports of the United Kingdom 11 sail vessels, 2 small steamships, both in ballast. This does not include the four ships of the American line. The North German Lloyd line carried last year more cargo than all of our ships together engaged in the foreign trade."

Regarding the main cause of the decline of the merchant marine there can be no dispute. It was brought about chiefly by the substitu

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tion of iron for wood in ship construction. This change, which began about 1850, resulted in transferring the supremacy in ship-building from the United States to England. During the period of the wooden sailing vessel this country had enjoyed advantages over foreign nations in the abundance and cheapness of the material and the experience and skill of the builders. But with the introduction of the iron steamship those advantages passed away. Eng. land had superior facilities for building iron ships, owing to the cheapness of the materials and the experience of her iron-workers. The result was the gradual decline of American shipping under the pressure of English competition. This was hastened by the serious losses inflicted upon American shipping during the Civil War, and by the natural diversion of American capital toward the West, where it found in railway construction a more attractive field of employment than was offered by maritime enterprises.

Regarding the policy that should be pursued in order to rehabilitate the merchant marine, there is a sharp division of opinion. "Free ships" and "ship subsidies" are the rival remedies proposed. The first policy demands the repeal of the navigation laws, which debar foreign-built ships from the American registry. Its advocates urge that American capitalists should be given the privilege of buying ships anywhere in the world and sailing them under the American flag. It is argued that the inability of the United States to compete with England in the construction of iron vessels would not have driven the American flag from the ocean had it not been for the navigation laws, which prevented American capitalists from having ships built abroad. The second policy calls for the grant of government bounties to home-built ships, in order to offset the alleged higher cost of construction and operation. Its advocates maintain that American capital can be induced to go into the carrying business only by offering it adequate remuneration for the extra cost of building ships in American yards and sailing them under the American flag. It is maintained by the supporters of the subsidy policy that the free admission of foreign-built ships to the American registry would not enable the United States to compete with other nations in the ocean carrying, because it costs more to run a ship under the American flag than under the flag of any other nation. The necessity of paying higher wages to their seamen, it is alleged, would put American ship owners at a disadvantage, even if they had the privilege of purchasing their ships abroad; therefore, something more than the repeal of the navigation laws is needed, in order to make ocean carrying profitable for American capitalists.

2. PREVIOUS SUBSIDY LEGISLATION.-In 1850 the first ship subsidy ever granted by the United States government was voted by Congress to the Collins Line. The amount of the subsidy was $385,000 for the first year. It was increased in 1852 to $858,000, and averaged about $800,000 for the next four years. In 1857 it was reduced to $462,000; in 1858 it was again reduced, and then discontinued. The effect of the subsidy seems to have been to encourage extravagance and carelessness in the manage

ment of the company. “If anyone," says Presi. dent Hadley, "desired an illustration of the danger of paralyzing individual thrift by gove ernment aid, he could hardly find a better one than the early history of the Collins Line." When the subsidy was finally withdrawn the company collapsed. The next experiment with subsidies was made from 1865 to 1875, with the Pacific Mail Line. In this case also the subsidy policy appears to have worked very badly. The company expended large sums in lobbying for additional subsidies, and the resulting scandals aroused a strong public sentiment which led to the discontinuance of the grants. The last subsidy act, passed in 1892, has had more satisfactory results. By that act the steamships City of New York and City of Paris, of the International Navigation Company-now the American Line, were admitted to American registry, on condition that the company construct two more vessels of equivalent tonnage in American ship-yards. The company was also granted a postal subsidy of four dollars per mile. It was further provided that all vessels under mail contract should be subject to requisition by the government in case of war. In accordance with the provisions of this act the company built the Saint Louis and the Saint Paul, which were used as auxiliary cruisers in the Spanish war. It should be noted, furthermore, that the United States government expends about $1,700,000 annually for ocean mail carriage, a part of this sum being paid to foreign ships. Hitherto, as appears from this sketch of previous subsidy legislation, no general construction or navigation bounties have been granted by the United States. Such subsidies as have been paid have consisted of special payments, chiefly for postal service.

3. HANNA-FRYE BILL.—This measure, which was introduced December 6, 1900, by Senator Frye, provides for the payment of bounties based on tonnage, mileage and speed. The bill is an amended version of the Frye bill and the Payne bill, which were under consideration in the Senate and the House respectively during the preceding session of Congress. The main provisions of the bill are the following: (1) American ships engaged in the foreign carrying trade of our exports and imports are to be paid a bounty of 14 cents per ton for each 100 miles sailed up to 1,500, and of 1 cent per ton for each 100 miles beyond that. (2) Vessels of over 2,000 tons, making 12 knots and upwards per hour, are offered, in addition to the regular bounty, speed premiums from 0.5 cent to 2.3 cents per ton for each 100 miles. Foreign built ships, owned by Americans, are to receive payments at the rate of 50 per cent. of the above bounties, on condition that the owners build an equivalent amount of tonnage in American ship-yards. (4) The bounties are to be paid in each case for a period of twenty years and the total amount to be expended in any year is limited to $9,000,000.

The opponents of this bill succeeded in preventing a vote being taken during the last session. This year it comes up again and will doubtless be acted upon before Congress adjourns.

4. ARGUMENTS FOR THE SUBSIDY BILL.–The general contention of the advocates of the sub

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SENATOR M. A. HANNA.

sidy bill is that it costs more to build ships in this country than it does abroad and more to sail them under an American flag than it does under a foreign flag, and tbat, consequently, if the United States is to have a merchant marine it must subsidize its ships. It is admitted that the raw materials of ship construction are now as cheap in this country as they are anywhere in the world. But it is maintained that wages in American ship-yards are about double those paid in Great Britain. A corresponding difference in wages is declared to exist in the case of ship's crews. This contention regarding the higher cost of building and running American ships is re-enforced by the claim that European nations have already adopted the subsidy policy. The grant of bounties by the United States government is called for in order to compensate American ship owners for the disadvantage under which they are placed in competing with subsidized foreign vessels.

Other reasons urged in favor of subsidies may be grouped under three heads: (a) war argument; (b) foreign market argument; (c) general prosperity argument. (a) “The reason why it is desirable to have ships built in this country,” says Senator Hanna, “is that it equips the nation with ship-yards which are in a direct way a part of the naval equipment of the United States. The more demand we create by favorable legislation for American built ships, the more plants we bring into existence for the building of our war ships and inevitably the cheaper will be the cost of our war ships to the nation." The advantage of having a naval reserve which may be drawn upon in case of war is also emphasized by the friends of the bill. Furthermore, attention is called to the possibility of serious injury to American commerce in event of a European war, through the destruction of the foreign ships that carry our exports and imports. (b) The continued prosperity of American industries, it is argued, demands that new markets be opened up abroad for the surplus products of farm, mine and factory. “One of the most efficient possible agencies for the extension of our markets,” declares Senator Frye, “would be American ships officered by intelligently active and interested American citizens." (c) The proposed measure is advocated as a benefit to the entire nation. “Every man, no matter what his vocation." asserts Senator Hanna, "is interested and will be benefited directly or indirectly, because you cannot create an industry like this, bringing about first the development of our raw materials and then a condition which ends with the construction of the ships, opening up the markets of the world, giving greater opportunities to our merchants and manufacturers, without benefiting every industry and every line of business."

ARGUMENTS AGAINST THE SUBSIDY BILL.-In the first place, the opponents of this measure assail the general principle of governmental assistance to industries as "a prostitution of the public authority to private gain.” The subsidy policy, it is said, involves taxation of the whole people for the benefit of special classes. It is inherently unjust. The policy is condemned, moreover, as wasteful. The effect of the bounty upon an industry is declared to be

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weakening. It is like that of alcohol upon the human system— "the more you take the more you want, and after you have taken too much, it will kill you to stop and kill you if you do not stop.” Ship subsidies, it is contended, en. courage reckless management on the part of navigation companies by teaching them to rely on state aid, rather than on economy and foresight.

In the second place, the opponents advance various arguments that bear specifically upon the proposed law. The contention upon which the bill is based that it costs more to build and run American ships than it does foreign ships is disputed. In answer to the claim of higher cost of construction in American sbip-yards it is asserted that ships can now be built in this country as cheaply as abroad. The recent development of the American iron and steel industries, it is maintained, has neutralized the advantage formerly enjoyed by England in the construction of steamships. As regards the high rate of wages in this country, it is held that this does not necessarily mean dear labor. The superior efficiency of the better paid American labor is said to off-set the difference in wages. In this connection attention is called to the remarkable growth of American shipbuilding during recent years. The statistics are given in one of the appended tables. The report of the Commissioner of Navigation for the fiscal year ending June 30, 1901, states that this has been the third successive year of notable prosperity in American shipping, surpassing the two previous years. For the current fiscal year an even greater growth is predicted. In view of these facts it is argued by the antisubsidy party that the shipping industry needs no artificial stimulation by bounties. In reference to the statement that the expenses of operating a ship are greater under the American flag than under the flags of other nations, it is said that the difference between the wages of American and European seamen from which

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