TRANSACTIONS OF SECTION F. 967 



department. He discusses the advautajres and disadvantages of private, of com- 

 pany, and of municipal trading, and points out causes which may drive munici- 

 palities to trade to a greater extent than they are now doing. He discusses the 

 disadvantage of trading involving the employment of a large number of workmen, 

 having regard to the fact of the employer being popularly elected. He discusses 

 the recent report of the Telephone Committee, particularly having regard to the 

 suggestion that municipalities should not trade for a profit. 



2. Ought Municipal Enterprises to Yield a Profit in Aid of Rates 1 

 By Edwin Cannan, M.A. 



Municipalities have been likened to joint-stock companies, the ratepayers 

 being the shareholders. If the parallel were exact, there could scarcely be any 

 question about the propriety of municipal enterprises yielding a profit, since to 

 make a profit is the object of the existence of a joint-stock company. How far, 

 then, does a municipality resemble a joint-stock company ? 



In form the two bodies are very much alike, the management of both being 

 committed to an elected council or directorate, and the ordinary members only 

 interfering on rare occasions directly, though the citizens or burgesses exercise far 

 more influence on the decisions of their representatives than the shareholders. 

 But the basis of membership is very difierent. In the company it is ownership of 

 a fraction of the homogeneous capital of the company, each fraction being exactly 

 the same as every other fraction of the same magnitude. In the municipality it is 

 connection with particular objects which have for the most part an individuality 

 of their own, which are not in the possession of the municipality, but only sub- 

 ject to its claims for rates, and which are revalued from time to tfme so that they 

 need not continue to bear the same proportion to the whole of the rateable 

 property. The business of both the company and the municipality is economic 

 work for the benefit of their members, but the company performs services for out- 

 siders and distributes profits in money dividends to its shareholders, while in 

 performing its ordinary functions the municipality provides commodities or ser- 

 vices for its members directly, and consequently has no opportunity of making 

 profits to be divided among them in money dividends. 



As far as municipal enterprises are concerned, however, the position of the 

 municipality resembles that of the company much more nearly. Municipal enter- 

 prise is distinguished from ordinary municipal work by the fact that the com- 

 modities or services which it provides are supposed not to accrue to the citizens 

 approximately in proportion to the rateable value of the property with which they 

 are connected, so that it is considered necessary to charge for them by methods 

 and standards difierent from those which regulate the levying of rates. By 

 hypothesis, then, the business is no longer a merely 'mutual' one, in which each 

 member receives direct benefit in proportion to his' share, but a business like that 

 of an ordinary company. The municipality ought to be allowed to make a profit 

 for the same reasons as a company is allowed — (a) in order that it may have some 

 inducement to undertake the enterprise, which it will not have if it must take all 

 risk of loss and no chance of gain ; (^) in order to secure eflicient management ; 

 and {y) in order that the economic proportion in the production of different 

 commodities may not be disturbed. The arguments against profit-making in 

 municipal enterprise seem to be founded on an antiquated socialism or on a false 

 analogy, either from co-operative institutions or from ordinary municipal work. 



That there may be cases in which it is not economically desirable that the 

 highest possible profit should be made is probable; but these cases are far less 

 frequent than is supposed, and since when they occur the damage must be much 

 greater to the locality than to the country in general, and also be tolerably obvious, 

 there seems no need to restrict the freedom of the locality. 



