sion. seems to have taken

[Municipalities and the BCE Co.

- {By Albert Dettman—
yD ITS report of July, 1943, the Public Utilities Commis-

a very untenable stand with

wespect to the indirect expenditures which the BCElectric.
“Companies have, in varying degree since their separate

B foundings and subsequent com-
> bination, placed. within the
| category of operating costs.
| These indirect expenditures in-
_. cluded such items as enginecer-
ing, superintendence, overhead,
interest during construction
and so forth which over de-
cades, amounts to a sum of
very considerable proportions.

The municipalities contend
| that all of these items which the
“companies incorporated under
operating expelises must not re-
ceive consideration in assessing
the value of BCElectrit proper-
ties since, as operating costs,
the rate Structure of the com-
pany expressly made provision
for meeting these indirect ex-
penditures. They were paid for
by the consumers in the form
of excessive rates far beyond
economic justification.

(2246 this whole question
ef indirect expenditures,
already accounted for under
operations, out of its histori
‘eal and company context, the
comimssion put forth the view
that since “‘capital expendi-
.tares ordinarily include indirect
as “well as direct costs,’ cer-
tain -indirect costs which the
companies have habitually
charged to operating expenses
should he transferred to,
and~ be considered in the
eategory of capital expendi-
tures . thus enhancing the
“value” of BCElectric proper-
ties by many millions of dollars.
Supporting this contention, the
commission maintained that
“ander ‘proper treatment these
items would have been “charged
to eapital account
fonds (thus released) would
have been “available to share-
holders for their own use.”

After making much ado
about the lack of guiding prece-
dent, the elevating and peculi-
arly individual aspects of the
companies’ organization to the
place of prime importance, it
projects the argument that
“onder proper treatment” the
history of BCElectric financing
would haye been different. So
they recommend that history be
revised! ‘This whole argument,
aside from its absurdity, ig-
mores entirely the excessively
high rate structure of the
BCElectric companies as a de-
vice- purposely intended to
overcome the high operating

- costs necessitated by the obvi-
ous unwillingness to risk large
blocks of promotion and de-
yelopment capital.

ACCORDING ito the commis-
sion’s principles of utility.
financing, the rate structure of
the BGElectric and associated
eompanies could have been for-
‘mulated and applied, profitab-
ly, at a fraction of their See
- ine levels. Without these pad--
‘ded” operating. -costs, the al-

and the -

ready high rate of profit of the
companies be further mereased
(retroactively) by transfering
operating costs to capital ac-
count bespeaks a rare inability
to determine what is the public
interest.

This method of capital ex-
pansion without any corres-
ponding imyestment of capital
is a device suited to pyramiding
“sharks.” It characterizes ra-
pacious monopolies in that it
centralizes control in direct pro-
portion to the expansion of in-
dustry.

(jee BCHlectric companies are

today a big utility complex
not because they expanded /on
the basis of a simple addition of
investment capital directly. in-
corporated into the capital
structure of the companiés con-
cerned. No. Rather, expansion
proceeded on the basis of an
assured monopoly position
which made possible high service
rates to offset early meagre cap-
italization; thus assuring! a fair
return on invested capital and
simultaneously, enabling operat-
ing costs to be so stretched as
to account for a large propor-
tion of all absolute expansion.
This is the formula:

The people of British Golum-
bia who paid, and still pay ex-
horbitantly for the services so
provided, shouldered this
growth and development as di-
rectly as an investor! Monopoly,
once established, even on a
small seale as in individual mu-
nicipal utilities, can and does
proyide ruthless entrepreneurs

with an opportunity to build
on the basis of a relatively
small initial capitalization,

through the medium of a high
rate structure and an all inclu-
sive operating account, gigan-
tie enterprises.

These are repeatedly recapi-
talized on the basis of expan-
sion hidden in operating ac-
counts.

[twill help materially if we re-_

solve monopoly prices for good
and services into their three
characteristic: elements. First,
there is the economic “fair
return on invested capital.”
Secondly, there are the costs of

production; and then there 1s

an expansion element by which
monopoly finances its self-ex-
pansion without the necessity
to have recourse to the capital
market. It becomes, more and
more, independent of the capi-
tal market. :

Basically, this is the reason
why monopoly prices inevitably
exceed justifiable economic
prices. This is what appeals
to the enterprising magnate
above all else. This is - why

monopoly becomes 2 social prob- _

lem. . It exists upon the

shoulders of society generally, -

and not upon the shoulders. of
the thrifty, risk-assuming in-
vestor for its sole support...

[X GHRMANY today this pro-

cess of self - expansion
through all-inclusive operating
accounts has practically elim-
inated the need for subsequent
additions of investment capital.
Thus the shares which corres-
pond to initial capitalization be-
come progressively more im-
portant and shrink in number,
relatively, as the enterprise
grows. They are fought for,
and with their possession con-

‘trel and effective ownership is

secured.

The whole process generates

concentration and bears little or ~

no relation to the real value of
plant and equipment so en-
snared.

False Analogies

ik

P. A. Features, December 2 — Page 13

Neumann, in his account ofg

German corporation practices
on the eve of the outbreak of
War, cites many instances

where shares, issued upon sub- ~

sequent recapitalization and
marketed in
amounts, bear absolutely no in-
fluence on such corporation

practices.

The small holder is, openly
despised and looked upen as a
petty nuisance.

Often, too, the fact of pos-
session is. even utilized as a
sort of control over the holder

of ineffective shares, which
manifests itself in the form of
speculative manipulations of

By Palm Dutt

“ineffective |

non-vital shares as a sport in-
tended further to,.augment the
private, individual fortunes of

. those in control at the top.

@

{eee people pay directly for

monopoly, and they are en-
titled to regulate and control
it; .. . even curb or acquire it,
legally, to just as great an ex-
tent as any holding company or
board of directors. :

Monopoly is eminently public
enterprise, but narrowly and
privately controlled, often with
anti-social results.

UGH of the outlook of those liberal, democratic and pacifist sections who criticize

~ the harshness of the proposed United Nations measures in relation to Germany
(unconditional surrender; military occupation; disarmament; punishment of war crim-
inals; reparations;. certain territorial changes; and probably economic control of heavy

industry), and see in;them the —
seeds of future war, is based. _.
on false analogies -with~ 1918

and memories of the last war
and its outcome.

It used to be said in the last

-war—libellously enough — that

British brasshats approached it

-with memories ‘of the South

African War, just as the Freneh
General Staff approached the

- present war with memories of

the positional warfare of 1914-
18.

Certain it is that many
representatives of the labor
and democratic
are crippling their under-
standing of the present new
world situation because they
endeavour to see it through
the spectacles of a situation
of a quarter of a century
ago.

But history never - repeats
itself save to the dull-sighted.
These dwellers among the
ghosts of the past lose com-
pletely from their view the two
main factors of the past quart-
er of a century, which had no
existence .in 1914; first, the
growth of the Soviet Union to
a foremost world power; and

second, the development of fas-

cism.

Yet these are the two main
pivots of the modern period of
world history; and the war be-
tween these two forces for the
future of the world, between
the rising forces represented by
the Soviet Union, socialism and
the free peoples of the world,
and the declining forces, repre-
sented by fascism, is the cen-
tral theme of the present war,
just as the Anglo-German

rivalry was the central theme

of the last war: it is only in
the outward trappings that the
superficial parallels appear.

The line of argument of these
Rip Van Winkles is familiar.
The Versailles Treaty, they de-
clare, represented the attempt

to disarm and hold down Ger-
“many and impose penal pro-

movement .

army

Visions: The outcome, they de-
clare, was to exacerbate the
German people and led to the

domination of Hitler.

- The Versailles Treaty prov-
ed -impotent, and within a
quarter: of a century was de-
feated. Germany was more
‘strongly armed than ever and
able to embark on a new thrust
for world: domination on a still
greater scale.

“We cannot break the power
of sixty million German-speak-
ing people to. organize and
maintain their military re-
sources. We tried in 1919 and
failed: Lhe attempt preduced
Hitler and a renewal of the
war.’—(G. Bernard Shaw in
the Sunday Pictorial, Ausust
18, 1944.)

“At+—ypts made to hold down
vigorous nations over an in-
definite period by force of arms
have always failed. The
German navy was sunk to the
bottom of the sea; the German
reduced to: 10,000 men
and so. on: until the German
people, exasperated by the

, sights and humiliations that

we put upon them, were within
a decade turning a receptive
ear to the savage sophistries
of Hitler. with results that are

-all too visibly before us.” (©. BE.

M: Joad in the New Statesman
and Nation, Aug. 19, 1944.)

‘Hence the ¢onclusion~ is
drawn that the part of wise
and far-seeing statesmanship
after the defeat of Nazi Ger-
many is to draw up a magnan-
imous treaty for Germany,
without penal terms of dis-
crimination, lest the German
people turn to a new Hitler.

eee step in this argument

is. false, either in direct
historical fact, or by omission
of the decisive factors under-
lying the development record-
ed. It is not true that the Ver-

&

sailles Treaty carried through
the effective disarmament of
Germany; on the contrary, the
Allied Powers winked at the
secret rearmament of Germany,
the formation of illegal armed

corps, the maintenance of’
stores. of arms and the viola-
tion of the disarmament

clauses from the outset (and
reports of the Inter-Allied -
Disarmament Commission ex-
posing the facts were shelved
and hushed up), because their
fear of Bolsheyism and hostil-
ity to the Soviet Union were
greater than their antagonism
to German imperialism.

This was the decisive factor
which corroded the disarma-

‘ment clauses of the Versailles

Treaty, and not any ponderous
absolute historical law about
the impossibility- of disarming
a defeated nation.

.Germany was able to rearm
completely, and on a yet more
powerful scale, not because the
Versailles Powers were incap-
able of preventing it, but be-
cause they deliberately permit-
ted, encouraged, assisted and
even financed German rearm-
ament, as a weapon against the
Soviet Union.

The German military revival

.and renewed aggression within

two decades of complete defeat
took place on the very definite
basis of the antagonism and
division of the Western Powers
and the Soviet Union. This was
the key governing force of the
period between the two wars,
which is left out of account in
the liberal-pacifist legend.- And
this is the fundamental fact
which has now changed, by the
consolidation of the United
Nations alliance and the Tehe-
ran agreement; and this change
opens the way to a new de-
velopment, rendering the old
arguments out of date.

ae