POLITICAL AND COMMERCIAL AFFAIRS

The Seven Kings in Mexico

Charles Edward Russell in Cosmopolitan August 1 1907
POLITICAL AND COMMERCIAL AFFAIRS

The Seven Kings in Mexico

Charles Edward Russell in Cosmopolitan August 1 1907

The Seven Kings in Mexico

POLITICAL AND COMMERCIAL AFFAIRS

Charles Edward Russell in Cosmopolitan

THAT old mountebank and tinsel charlatan, Napoleon the Third, Napoleon the Little, Napoleon the hero of shabby exploits and reactionary dreams, wrought in his lurid day infinite evil and, unconsciously and unintentionally, some fragments of good. He set up the Mexican empire and for the time being crushed the republic. But when, freed from the distractions of our civil war, we had chased him from the scene of his pet folly, and his little empire had fallen, let us give thanks, on his own head, the surge of reawakened patriotism made Mexico a nation and started it upon the road to greatness—as surely as we were pointed thither when we broke from the mold and fustian of monarchy.

One other good thing was brought by the short-lived French occupation. It established in Mexico some of the best institutions of French laws, and one of them was the French idea of controlling corporations instead of being controlled by them, an excellent device, and one that ought to have keen interest for us—by way of contrast.

For instance, railroads.

Here is a curious matter. If a man having broken his leg should refuse the services of a surgeon and insist upon treating his hurt with Mother Smith’s Soothing Salve, we should not think much of that man’s intelligence ; but a course that in our personal affairs we should deem foolish we are quite côntent to follow in the affairs of the nation. Being afflicted with the dangerous power, the lawlessness, arrogance, and dishonesty of great railroad corporations, we are willing to ignore the cause of the trouble and to busy ourselves in dosing the symptoms—with flabby rate bills, infantile inspection bills, and boneless public utility bills.

This seems strange, but it is not half so strange as something else.

Nearly all other nations have made thorough tests of all these nostrums and having proved by experience that theye are worse than useless, have thrown them away. At the tail of the procession come we,’ painfully and laboriously resurrecting from the world’s rubbish heap the discarded bottles, and with much eclat we apply the old remedies.

Meanwhile, wasting good and precious time, as we should know by our own experience. Twenty-one years ago, after eight years of agitation, we set out with an interstate-commerce law to “regulate” our railroad troubles. It took us twenty years to become convinced that this law was not worth the paper it was written on, that while we were fooling with it the robberies continued, protected by the very law that pretended to suppress them. Whereupon we betook ourselves anew to the old problem and attacked it with another interstatecommerce law just as invertebrate and jellied as the first. We have made faces at the corporation in politics, shaken our fists at the insurance exploiters, told the railroad companies to be good, used incantations on the traction thieves, muttered spells against the gas monopolies, and gone into a trance against the diseasedmeat swindlers. Now in our hearts we begin to feel that none of these things is of the least avail, while with our voices we cry aloud against the surgeon and for further experiments with incantations, making faces, and muttering spells.

In other countries when they have demonstrated that a quack remedy is worthless they know it is worthless. Enough for them is enough. Then they try something else.

This has been the record in Germany, Italy, Switzerland, and Japan, as these nations have dealt with their railroad problems. Lately there has been the same kind of demonstration

in Mexico. The other cases are well known ; very little has been said about Mexico. I commend it to the attention of all those that still think spellmuttering is the thing.

Mexico once went infinitely farther in the way of railroad regulation than we have ever dreamed of going, and the Mexican railroad regulations were regarded by high authority as the most perfect that had ever been framed by man. In fifty or sixty years, at the present rate of progress, we may reach a state of “regulation” as radical and severe as that Mexico has now abandoned ; and since we have elected to follow this road we might well see wither it has led in the experience of another nation.

No question is raised anywhere about the wisdom or the extremely radical nature of railroad regulation as practised in Mexico. It was wont to be commended to us as the model of that kind of statesmanship. With a full and perfect knowledge of the troubles that beset us it was devised for the purpose of preventing them and nothing better for that purpose has ever been found. It was the perfection of “regulation.”

To give examples:

Many of our difficulties have arisen from the fact that with us the normal function of a railroad as a public highway has been totally obscured and the railroad has come to be looked upon as a piece of private property operated solely for private profits. The old-world principle has always, been that a public highway cannot be alienated for private uses. In this country we have tolerated the doctrine that when we have condemned a right of way and allowed a railroad to use it the highway thus established becomes the exclusive and sacred possession of the railroad company and over it the company alone has jurisdiction. On the contrary the railroad laws of Mexico were founded expressly on the broad proposition that railroads are public utilities, that they do not exist solely for private gain, that they are operated only by public permission, that over a public highway the .public has inalienable rights. Hence

at the beginning there was a notable difference in the purposes of the legislation of the two countries.

To build and operate a railroad in Mexico it was necessary to obtain from the federal government a concession, and the power to regulate centred about this concession.

First : That no concession should be granted for a longer term than ninetynine years. At the end of the term, whenever it might be,the railroad clear of encumbrances and debts, should become the property of the nation. For buildings, machines, and rollingstock owned by the company the nation must pay an appraised price. Everything else owned by the company should pass without compensation into public ownership.

Second: To keep the railroad companies in order while they were yet in control of the properties were ironclad laws to be obeyed.

Every company when it applied for a concession was obliged to deposit with the government a sum in government bonds varying (according to the nature of the line) from fifty to two hundred dollars for each kilometer of the track it proposed to construct. This deposit the government could declare forfeited whenever the company failed to obey the government regulations.

Also, the concession (or charter) could be annulled at any time for cause.

Thus, if the company failed to carry out the terms of the concession, or if it allowed a total or parital interruption of the public service, or if, without the consent of the government, it sold its concession, or any part thereof, the concession could be taken away, the deposit was forfeited, and the government took possession of the road.

Therefore the power of the government over the railroad companies was direct, perfect, and absolute. It was a power buttressed, also, by many ingenious devices.

The government appointed its inspectors of maintenance and inspectors of administration, as many of each.

as it saw fit, and fixed their salaries; but these salaries and all the expenses involved were charged upon the companies.

One body of inspectors supervised the operation of the railroads, all matters connected with maintenance, safety, tracks, rolling-stock, buildings, switches, motive power, and the makeup and speed of trains. To these inspectors the railroad companies were obliged to give all required information on all subjects pertinent to the physical condition of the roads. The inspectors investigated all accidents, great or small, and made duplicate reports thereon to the national Department of Communications and Public Works and to the court of the district in which an accident occurred.

The administrative inspectors examined all agreements made between company and company, kept track of the business transacted, noted the earnings and disbursements, inspected the companies’ rules, received complaints, and reported deficiencies. To them the companies must show all books, documents, and records, and give free access to all property. They attended all meetings of directors, executive boards, voting trusts, and all other bodies connected with the railroad, passed upon all matters transacted at such meetings, and any statements of their making must be entered upon the minutes of the company.

Both classes of inspectors made to the Department of Communications and Public Works minute reports on their observations. Hence the government was at all times perfectly informed about the railroads, and holding over them always the tremendous sword of confiscation could enforce any legislation it might choose to make, or instantly change any policy of which it did not approve. The administrative inspectors practically sat on and dominated the directorates; the maintenance inspectors kept the service up to the public needs.

To give a concrete illustration of what this would mean in our country, turn to those regions in the west and

northwest that last winter were weeks together without freight or passenger service because the companies did not care to operate the roads. If we had the Mexican system of regulation reasonably enforced, Mr. Hill would have found himself long since dispossessed of many choice pieces of his railroad, deprived of his deposit and. of his charter and franchise, while the government would be running his trains for its profit and the relief of the public. This, doubtless, would have caused much pain to Mr. Hill, but it would have ended the tortures of the people that burned their fences and outhouses to keep warm and ground wheat in coffee mills to keep from starving. On the whole this would seem to be an end rather better than furthering Mr. Hill’s prestidigitation on the stock market.

But what I have related is only the beginning of the Mexican system. Besides the force of inspectors the government erected many other safeguards.

All rates were subject to the approval of the national authority, which had full power to make in the tariffs whatever changes it might choose to make. Rates were calculated upon the one basis of so much a mile and nothing else, and no variations were allowed from that standard.

Thus at once Mexico was freed from the whole occult, marvelous, mysterious, and awe-compelling science of rate-making as practised in our happy land. Here we believe that a rate tariff is a tablet from Sinai, mystic, obscure, and made by what awful perturbations of inspired intellect fancy faints to think of. In Mexico any person, however common and ordinary, could figure his rates. So many kilograms to be carried so many kilometers—so much. That was all. And the government not only regulated the rates, it made them. And still it escaped the wrath of heaven, no panics followed, no disturbances, no disasters, no ruin of glorious prosperity.

In this country we fiddled away a quarter of a century in a dawdling debate as to whether the government

might go so far as to forbid a railroad company to gouge a greater sum for hauling one hundred pounds one hundred miles than it gouges for haulling one hundred pounds one thousand miles, and after all the fiddling the Supreme Court decided that the government could not do that simple thing. In Mexico the government merely went straightway and did it and never fiddled at all.

It prohibited greater charges for short hauls than for long hauls ; it prohibited every form of discrimination, trick, device, scheme, or secret contract to advantage one shipper, over another ; it expressly declared that every shipper must have exactly the same treatment as every other shipper as to rates, conveniences afforded, cars, transit. It utterly prohibited every kind of rebate. It prohibited the refunding of any charge in any case, whether for carrying passengers or freight and whether in whole or in part. It recognized two classifications : car-load lots and less than car-load lots. To provide for the greater expense of handling small packages, car-load lots took a slightly smaller rate than less than car-load lots, but a familiar swindle by American railroads was obviated by reserving to the government the right to fix the minimum weight constituting a car-load lot. Within these classifications no variation of rate was allowed; a man shipping one car a year was to have exactly the same rates, the same facilities, the same treatment, and the same despatch as a man that shipped ten thousand cars a month.

Even this was not all. Besides the incessant watching of the inspectors the government had still other means of enforcing its control. The companies were obliged to make to the Department of Communications and Public Works periodic reports of all rates charged, so that the government could see for itself that the laws had not been violated ; and penalities for rebating and discrimination were provided against the companies and the executives and the agents thereof. Moreover, the company was obliged

to pay, in every case of rebating or discrimination, to all persons that for two months before and for two months after the offense had shipped merchandise between the same two points, twice the difference between the legal rate and the rate charged to the favored shipper—probably the most ingenious and promising device ever used against rebating.

Also, severe penalties were pro* vided for any attempt by false entries to conceal or alter any rebating or illegal charges. Underbilling was absolutely prohibited. So was ticketscalping.

In March of every year every railroad company was obliged to present to the government a report showing the amount of all kinds of stocks and bonds it had issued, the dividends paid and the number of shareholders, its indebtedness of all kinds, a description of the road and statement of its original cost, present value of the property, franchises, and equipment (with detailed items), the improvements made, the cost thereof, earnings from passenger traffic, earnings from freight traffic, expenses, net earnings, and a detailed statement of its finances.

Every railroad was obliged to transport free of charge all government inspectors and customs officers in discharge of their duties.

Still more important, the railroads were obliged to carry free of charge, the government mails.

Reflect for a moment upon what such an arrangement would mean in America, where the monstrous charges of the railroads for transporting the mails prevent our government from giving to its citizens such postal facilities and service as are provided by the smallest nation in the postal union, and where annually the fraudulent mail contracts enable the railroads to rob the government of not less than fifteen million dollars !

Again, the general spirit governing these laws was to be seen in the explicit declaration that nothing contained in them was to be construed as establishing for the railroad companies anything in the nature of acquired

rights, but every feature of the law was subject to modification and repeal at any time and at the government’s pleasure.

This, of course, abolished forever in Mexico that other gross specter of modern life, the vested right. Railroad companies in Mexico could have no vested rights about anything. It was never asserted for them that because they had been violating a law for sixteen years they had the privilege to continue forevermore to violate it. It was never asserted for them that because for a generation they had been killing people on a grade crossing they had an inalienable right to maintain that kind of a slaughter-house. The position taken by these laws and steadfastly maintained was that the railroad companies existed by the permission of the state and only on condition that they performed certain public duties and that the privileges whereby they were allowed to do business were never surrendered to them but merely lent by the state buring good behavior.

At the same time all needed protection was provided for the stockholder and innocent investor. Even when for cause the government confiscated a concession the stockholder did not lose everything!. The deposit made with the government at the outset of the undertaking was lost irrevocably, but the stockholder stood a fair chance to recover the greater part of his investment. The government was not empowered to seize the railroad out of hand and without any compensation. It offered the property first at public auction; if no bidder appeared the government purchased the road at two-thirds of its valuation, and in either case the stockholders received the proceeds less the judicial and other expenses of the government. When the government seized a railroad for insufficient service the property was returned if within a year the company submitted satisfactory evidence that it could furnish adequate service. It was also allowed in its defense to offer evidence that the interruption of service was due to causes beyond human control ; but such evidence must be

absolute and unquestionable to avoid the seizing of the road.

Against these sweeping and extreme regulations the railroads had no appeal. They could not go to the courts, they could not resort to injunctions, stays, demurrers, traverses, precedents, appeals, rejoinders, quillets, quibbles, hair-splitting, or word-wandering. They could not secure delays nor by wearing out the patience of a mal-treated public induce it to submit to bad service rather than to submit to the weariness of unending litigation. A railroad company sentenced to confiscation of its property could do nothing but yield up its charter, wind up its affairs, and cease to exist. This is a general outline of the laws praised in many quarters as wise, just, efficient, and needful. As to their practical results, some assertions, at least, may be made with certainty. They bore no hardship upon railroad operation, they were no check to railroad development, they were no hindrance to investment, because under them the railroad mileage in Mexico, as I shall show in a moment, rapidly increased and the amount of capital invested in Mexican railroads mounted year by year with almost unprecedented rapidity. For many years together Mexico built annually more miles of railroad than any other country in Latin America. As to the result upon the public interests, that seems to have been eminently satisfactory. Surprisingly little complaint was made by shippers over Mexican railroads. The minimum of rebating and discrimination seemed to have been attained. There were competing railroads and some sharp practices to get shipments. Also, there was some rebating and refunding: to have privately owned railroads without these appendages is beyond the ingenuity of man. There was probably some little juggling of rates (on the sly), for that likewise is an integral part of private ownership. But the total amount of all such transgressions was infinitesimal compared with those in our experience. The risk was too great. In our country a railroad company granting rebates has noth-

ing to fear except that if caught in the act it may perhaps some day in the remote future be obliged to pay a fine amounting to one-fiftieth of its profits for a day. In Mexico a railroad company faced the loss of its existence, as well as fines and imprisonment for guilty officers. That had a tendency to make rebating unpopular, a condition enormously helped by the fact that the courts could not interfere.

As a rule, therefore, the shippers fared exceedingly well in Mexico. They always knew what the tariff was, and they knew that it was fairly calculated on a mileage basis and that one of them was not likely to have any advantage over another. The public fared well because the railroad companies did not attempt to interfere with government, nor give campaign subscriptions, nor control elections, nor nominate candidates, nor emasculate laws, nor bribe legislators, nor operate secret news bureaus, nor own newspapers, nor deal with votebrokers, nor pad the registration lists. And capital fared well because it was assured against adverse legislation and the enormous expenses of buying votes, controlling conventions, financing campaigns, hiring candidates, and rotting the heart of public morals. So the plan seems to have been very happy all around, and the country thrived amazingly.

In 1903 a London newspaper estimated that private capital had invested $854,563,067 (Mexican) in the railroads of Mexico and gave the following details of some of the principal investments :

Mexican Central Railroad ............$164,336,452

Mexican National ........................ 77,180,593

International of Mexico ............... 38,040,200

Mexican Railroad ........................ 36,703,900

Interoceanic ................................. 25,773,680

Mexican Southern ........................ 11,250,000

Vera Cruz & Pacific ..................... 10,000,000

Chihuahua & Pacific .................. 7,505,066

Sonora Railroad ........................ 6,834,147

Rio Grande, Sierra Madre & Pacific 3,120,000

Mexican Northern ..................... 1,660,000

Panal to Durango ..................... 1,(100,000

Kansas City, Mexico & Orient ...... 691,912

I call attention to two facts :

Of these great investments the greater part was American capital.

Most of the American capital was

furnished by the men that in this country strenuously and bitterly oppose the governmental regulation of railroads.

That is the truth. The identical men that sound the loud alarm and terrify us with prophetic visions of the evils to follow a little regulation went cheerfully to Mexico and risked their millions in a country where there was a great deal of regulation. To prevent rebates in the United States would ruin our railroads and bring on the soup-kitchen ; to prevent rebates in Mexico created for railroads a wholesome and inviting condition. To prevent extortionate rates in the United States would destroy our great railroad industry and beggar the vast number of widows and orphans supported thereby ; but in Mexico the government might not only limit, it might fix all the rates and no ruin and no starvation would follow. In the United States at the mere suggestion that the, railroads were not supreme in our affairs those delicate and sensitive institutions were threatened with collapse ; in Mexico the government with great heartiness kicked them all about the lot and the owners merely sent more money to invest.

Such are the facts. You may explain them as you see fit. Rockefeller, Morgan, Harriman, Gould, nearly all, in fact, of the seven kings of the American railroad system, were heavily interested in Mexican railroads and continually adding to their holdings. The Atchison, Topeka & Santa Fe had invested heavily and wisely. Mr. Harriman had a concession and was building in western Mexico an important extension of his lines. The Gould interests were deep in Mexican National. The. Mexican Central, the greatest railroad in the country, was conceived in Boston, organized with Boston capital, and was largely owned by John D. Rockefeller. The International was floated in Connecticut. Many a man that professes horror at the idea of a railroad system without graft and without stock-rigging placidly put his dollars into exactly such a system and wished he had more

there. When it was suggested to Mr. Hill that really he ought not so to operate his Northern Pacific that people froze or starved, he responded with tart rejoinders or gloomy forecasts of evil days. But there was a country where he would have lost his railroad for doing such things with it, and men of his class not only endured the “governmental tyranny” but throve under it. The railroads subjected to such tyranny not only did business but an immense amount of business and with profit, the gross receipts of the Mexican Central being about twenty-five million dollars anually, of the National more than eleven million dollars, of the International more than seven million dollars. In ten years the gross receipts of the leading Mexican railroads, excluding the National, showed an average increase of three hundred per cent.—under the severest system of governmental supervision and regulation known among nations. What say you, gentlemen?

At the end of 1905 Mexico had 16,387 kilometers (10,240 miles) of railroad. In 1876, when she began this system of “tyranny,” she had 567 kilometers. In 1876 she had six railroad companies; in 1906, ninety. In 1876 all her railroads transported 4,281,327 persons; in 1906, about 60,000,000. In 1876 the gross receipts of the Mexican railroads were $2,564,870.63 ; in 1906, about $85,000,000. Somehow the deadly blight of governmental interference fails to be discernible in these figures.

The principal systems have the following lengths in kilometers :

Mexican Central ........................... 3,547

Mexican National ........................... 2,017

International .............................. 1,416

Interoceanic ................................. 777

Mexican ....................................... 683

Vera Cruz & Pacific ........................ 420

Beyond doubt the Mexican plan was the most admirable, comprehensive, efficient scheme of regulation that has ever been devised. It gave to the government perfect control over rates and services. It placed in the government’s hands a tangible weapon against discrimination and rebating.

It insured to the public full and constant facilities. It obviated the chance of car shortages. It provided safety. It met almost every grievance that we have against our railroad service.

And yet it failed, and most needs be abandoned. ,

It could do many things ; one thing, the most desirable of all, it could not do. It could not prevent the railroad from becoming a great, perilous, overshadowing power in the nation.

The seven kings of our railroad system looked down to Mexico and it found favor in their sight. They said it was a good thing and they would push it along. They owned shares in many lines ; they were building and planning many others. Here was Mr. Rockefeller with his Mexican Central Railroad and Mr. Gould with his Mexican National and Mr. Harriman with his new line to the Mexican Pacific coast. How fine it would be if they were to combine their interests and possess all the country ! And here also came opportunely upon the scene the great Black Hand of the railroad business, the power that controls the Rock • Island. This extraordinary group of financial bandits that in ten years, without investment or legitimate capital, have put together the greatest railroad system in the world and loaded it with all this colossal and menacing pile of fictitious bonds and watered stocks, they were also in line for a slice of Mexico. The Rock Island planned to carry its system southward from El Paso through Mexico to the Pacific Coast, to the Isthmus of Panama, to regions beyond. It was a gigantic scheme and certain to have a glorious success.

Maps were made showing how Mexico would be parceled out by the harmonious combination of the kings. The Rockefeller lines reached here and the Harriman lines there and the Morgan lines over yonder, and when the combination had been effected there would be nothing left for anybody else and nothing for the combining gentlemen to do but exploit the people and draw dividends. It was a grand conception. From time to time in the summer of 1906 the American

newspapers reported its cherry progress. Everything was going well indeed ; the interests were being brought together, the necessary controls were being secured, and in a few months the combination would be perfected and fully launched to do the Mexicans good and run their affairs for them.

Many details of the combination were given. One seems to have been overlooked—Porfirio Diaz, president of the. Mexican republic. The oversight may be thought to have been rather important. Early in December, 1906, it was sorrowfully announced that there would be no consolidation of the Rockefeller, Morgan, and Harriman interests in Mexico because the Mexican Government held a majority of the stock in each of the railroads these gentlemen thought they owned. While the gentlemen had been going about forming a happy combination to exploit the inferior Mexicans, the inferior Mexicans had been making some moves on their own poor account. In ways so carefully concealed that the seven kings never heard of the matter. Mr. Diaz had been buying stocks. Emissaries had moved noiselessly around France, Belgium, Germany, England, and the United States, picking up what they could find. When they had found enough the inferior Mexicans showed their hand and the seven kings heat a retreat— hardly, I regret to say, with the grace and dignity that becomes royalty.

The Mexican Government, giving no sign, had understood very well what game was afoot and what therefrom impended. It knew what the railroads were in the United States. It had long determined that no such power should gain domination over Mexico. Against the menace of the railroad trust regulation was nothing. The enormous mass of millions behind the American railroads had been too strong for the United States. Then what chance against it would Mexico -have, a country of population and resources so much smaller? So the government had thrown up the only officient defense. Following the example set by Minister von Maybach when he got possession of the Prus-

sian railroads, the Mexican Government had merely bought enough of the stock of each principal railroad to secure its control. It had not bothered with the bonds nor with any other phase of railroad values. Then it voted the stock it owned and puts its agents on the boards of directors. That was all. The operation of the roads proceeds as before. The stockholders keep their stock and will get their dividends.

Minister of Finance, Limantour, broke the news to the Mexican congress on December 13th. He said that the government had been driven to the step by the growing danger that the Mexican railroads would be absorbed by the American railroad trust and referred significantly to the difficulties we were experiencing in enforcing the laws upon great corporations. It was, in fact, no wholly new step by the government. The seven kings might have been warned. Mexico had always held a certain considerable interest in properties that railroad royalty was managing so confidently. She had but to increase her holdings and out went the kings. The policy chosen by the dusky and able gentlemen that directs Mexican affairs might easily have been discerned by the astute. In 1902 he had purchased a controlling interest in the important Tehuantepec Interoceanic Railroad, obtaining the bonds in the market at 90 1-8 and paying for them from the reserve funds in the treasury. At that time the announcement was made that the government had not sought to make a profitable investment but to prevent pools and trusts it felt it could not regulate nor control. That was the motive in its later and greater acquistion. No sanction by congress was necessary, the Mexican executive being authorized to take such steps when needed for the general welfare. The prices paid for the stocks are not made public, but the government has the roads, hard and fast, about nine thousand miles of them, including the lines once happily controlled by the seven kings. Some small properties are still to be acquired in the government’s own good time*