Theo Rothstein April 1903

Municipal Socialism

Source: Social Democrat,Vol. VII, No. 4, April, 1903, pp.200-211;
Transcribed: by Ted Crawford.

The subject of Municipal Socialism is, I under­stand, coming up for discussion at our Conference at Easter, and though the present article is likely to appear too late to prove of any value as a contribution towards that discussion, yet as a general review of the question it may serve its own purpose. After all that has of late been said and written on the subject it is, of course, difficult to say anything new, and the reader who is more or less acquainted with it, will, indeed, meet with very familiar figures and arguments. Still it is well to marshal once more the essential facts of the case, and to define once for all the Social-Demo­cratic standpoint.


To all intents and purposes of controversy - on the broader aspects we will touch later - Municipal Socialism may be taken as equivalent to what is termed by its opponents Municipal Trading. It is on this head that the whole controversy turns. The oppo­nents assert that Municipal Trading, i.e., the owner­ship and working of industrial undertakings by local authorities, is a financial failure and leads to ever greater local burdens in the shape of heavy rates and indebtedness. Its friends deny the charges and assert the precise reverse. The question as to who is right is of great importance, since with it the larger hopes of Municipal Socialism are taken to stand or to fall.

Now we, Social-Democrats, are naturally inclined to believe the friends of municipalities, even without looking into the facts. We know of no special magic or other mysterious power by virtue of which industrial concerns could be run more profitably by private enter­prise than by a municipality. Now-a-days the direct personal interest of the individual in his business is gone. The actual management of industrial concerns is in the hands of paid officials, and whether the latter are controlled by a board of directors acting for the larger body of shareholders, or by a town council acting for the general public, is absolutely immaterial. If anything, the management of a municipal concern is likely to prove more efficient, more conscientious, - therefore, more profitable to the public as owners, and advantageous to it as consumers, than that of a private concern. This naturally arises from the greater re­sponsibility before the public of those who manage a municipal undertaking, from the absence of any direct pecuniary gain personally to be derived from it, from the vaster means at its disposal, and from the greater publicity to which the actions of the managers are exposed. Thus even a priori there is a strong case for those who assert that municipal trading does pay. This is completely borne out by the facts. From the recently published Parliamentary return of reproductive undertakings carried on by municipalities (London not included) on March 31, 1902[1] we extract the following figures:

Nature of undertakings
Capital invested
Average annual income (last four years).
Average annual working expenses.
Repayment of loan, interest, &c.
Average annual net profit or loss.







Waterworks (193)






Gasworks (97)






Electricity Supply (102)





- 11,707

Tramways (45)






Markets (228)






Baths and Washhouses (138)






Burial Grounds (43)






Working Class Dwellings (24)






Harbours, Docks, &c. (43)






Miscellaneous (16)












It is but necessary to glance at the last line, giving the totals, to see how unscrupulously the opponents of Municipal Trading lie. Not only are the municipal undertakings not run at a loss, but they actually, after paying all their expenses, both working and for repayment of loans, yield a net profit of £378,28I. The opponents of Municipal Trading, thus confronted with exact figures, try to belittle the result, saying that the net profit does not even amount to ½ per cent, on the invested capital. That is so; but as against this the following must be remembered. First, the local authorities are saddled with the repayment of the borrowed capital plus interest, - a burden from which private companies are free. Had, therefore, the under­takings been private concerns the profit would have been not £378,281 but £4,618,731 [2] That would have amounted to over 3½ per cent. on the capital. Second, many of the undertakings are explicitly not carried on for profit. Such are, for instance, burial grounds or baths and washhouses. Had they been in private hands the charges for their use would have been fixed at a figure which would cover all the expenses and yield the current profit. As it is, they are intentionally carried on at a loss for the benefit of the working-class public. To a certain extent this is so even with water. In many places the water-works are intentionally run at a loss to encourage its use, and thus to promote the general physical health of the community. Third, even in the case of those undertakings which are run for profit, the latter is not the sole governing consideration. The public and, to some extent, the workers employed in them, are allowed to benefit by it under the form of lower charges or better wages and shorter hours, etc. Thus, for instance, gas-works or tramways. Had the consuming public or the employees been exploited in the same way as they generally are under private companies, or actually were before the undertakings were municipalised, the profits shown in the table might have been twice as large. Lastly, though undertakings less than a year old have been excluded from the above Return, many of them are but of recent date and cannot yet be expected to yield the full return on the capital expended or even pay their way. Such, notoriously, are electrical works which even under the best conditions are apt to prove a loss for the first two or three years, or waterworks which cost sometimes millions before they earn any­thing substantial. Taken all in all, municipal manage­ment is a decided financial success, and it is sheer mala fides to assert that it is a failure.

If so, then the rest of the charges fall to the ground by themselves, The municipal undertakings pay out of their own income the required instalments of capital borrowed together with interest, and all work­ing expenses. How can the indebtedness to which they give rise fall a burden on the community and the rise of local rates be attributed to them? No doubt, the figures given above are but totals, and in some particular places, therefore, municipal management does result in a loss which the ratepayers have to make good out of their pockets. There the indebtedness and the high rates undoubtedly make themselves, to that extent, felt as a burden. But with the exception of those cases where, as we have just seen, the con­cerns are either intentionally, for health purposes, run at a loss, and the financial burden on the ratepayers may consequently well be justified on the same grounds as that, for instance, caused by sewage works, or they are in the initial stages of their career, in which case the burden is but temporary and will be amply repaid in the near future, the rest of such unsuccessful instances of municipal management are really rare and far between. In general the burden of the local debt and the rates rise for totally different reasons than municipal trading. Modern municipalities are, gener­ally speaking, imbued with a higher sense of their responsibilities than their precursors 40 or 50 years ago; they spend hundreds of thousands of pounds on undertakings and schemes essentially non-repro­ductive, but of vital importance to the community; and it is this expenditure together with that of the multifarious other local authorities - education, poor law, &c., which causes the rise of that portion of local debt which is a burden, and consequently the high rates now observable in the majority of towns. To say that municipal trading is responsible for this process is, therefore, untrue; in fact, it is the precise reverse of the truth since it is just by the profits on municipal undertakings that any relief is given to the rates. No doubt, there are many places where the rates are comparatively low and yet there is no municipal trading. But if we examine them closely we invariably find that this is so, not because there are no municipal undertakings in the place, but because the needs of the community are left unsatisfied. Where they are satisfied, there municipal trading comes in very handy. Thus, taking the last five years, [3] municipal trading has relieved the rates of the following towns to the amount: Birmingham of £183,723, Manchester of £442,120, Leeds of £174,403, Nottingham of £144,000, Leicester of £608,362, Hull £64,400, Bradford (only gasworks) of £427,000, Belfast of £52,511, Bolton of £200,465, Darlington of £70,406, &c., &c. Mr. James Carter [4], the borough treasurer of Preston, took the trouble to ascertain the rates in the different towns, carrying on municipal trading, and the amount per of rateable value to which they have been relieved during 1901-2, and drew up an interesting table from which we extract the following instances:-

Name of town
The rates as they would have been without municipal working.
The rates as they actually were.
The extent to which they have been relieved.


s. d

s. d.

s. d.


6 5

5 10

0 7


6 11

6 4

0 7


7 0

5 5

1 7


8 3

7 6

0 9


8 6½

7 10

0 8½


8 1

7 3

0 10


7 10½

8 ¼

0 10


8 0 3.10

7 5 3-10

0 7


9 0½

7 9

1 3½


7 11 4-5

7 4

0 7 4-5


8 7¾

7 11

0 8¾


8 4¼

7 7

0 9¼


8 5½

7 7

0 10½


7 9 2-5

6 11

0 10 2-5


7 2

6 6

0 8


6 5½

5 8

0 9½


and so on.

Thus, municipal concerns not only pay their own way without in the least touching the pockets of ratepayers, but actually save the latter the money by contributing towards the expenses of the local authorities. So far, therefore, from spelling financial ruin to the com­munities concerned, as the anti-municipal traders assert, they are, on the contrary, a source of income to them.


Having thus disposed of the objections raised to municipal enterprise of this sort by its opponents, we can now clearly see its advantages. They can be sum­marised under four heads, two from the point of view of the general public, and two from our particular Socialist standpoint.

First, there is the natural advantage of having im­portant public services, largely of a monopolistic character, as well as the production of important articles of general consumption and use, in the hands of a public authority, instead of in those of an irrespon­sible private company. By the exercise of its powers democracy can bring influence to bear on the local authority with a view of making the concerns as advantageous to the consuming public and to the workers employed in them as possible. This is actually being done with good results.

Secondly, it is a great advantage to have a source of income for the non-paying town-improvements and other non-reproductive undertakings besides the pocket of the ratepayer. It is idle to say that it is only the latter who gains by this additional source of a town's income. We live in a capitalist society, where a certain class possesses all the property and is very jealous of it. If the municipalities had for the recoup­ment of their expenditure only to fall back upon the ratepayer, many important improvements would not have taken place at all, and a still greater number starved for lack of means. That has actually been the case before the advent of the era of Municipal Trading, and is still the case where no such trading exists. We owe to the profits on municipal under­takings many good things in our towns.

Third, municipal management of industrial con­cerns has a great educational value in a Socialist direction. In a country like England, where indi­vidual enterprise has long been regarded as the most perfect form of economic activity conducive to the individual and general good, the spectacle of great concerns run by municipalities, with at least as great a success as private, is in itself an excellent object-lesson and answer to the eternal question, how it can be done. Individual enterprise loses both its reputa­tion for magical efficiency and its sacrosanct character, and people get used to turn away from it to collective effort.

Fourth and last, municipal ownership and control of industrial establishments gives, for a good many branches of production, the ready forms of the future. "On the morrow of the revolution" the organisation of these particular branches will have to undergo no change whatever, only the objects of production being altered, and with them the position of the workers employed in it.

These four advantages of municipal enterprise, we take it, will be recognised by every Social-Democrat, and in order to retain or to gain them we shall be pre­pared both to defend the municipalities against every and any attack, and to encourage further their activity. What is called Municipal Trading is a valuable instrument for the realisation of some of the best palli­atives in our programme, whilst at the same time it prepares in advance the forms of economic reconstruc­tion of the future.

But here we have to reckon with some who are pre­pared to go still further and would make us believe that what the modern municipalities are doing is something more than what we have just indicated. They assert that the municipalisation of the various branches of industry is actually the economic reconstruction which we have relegated to the morrow of the Social Revolution. It is, in fact, the Social Revolution itself. The munici­palised industries are Socialist industries, and by extending the process of municipalisation ever wider and wider we can finally embrace the entire production of the land, and thus bring about the Socialist Com­monwealth. This view, as is well known, has originally been launched by the Fabians, but now it is shared by many more besides, not excluding some in our own S.D.F. ranks.

There is a good deal of plausibility, one must con­fess, in this view. The undertakings form the collective property of the community, are controlled by it and run for its general benefit. What more do we require of a Socialist concern? Yet the least examination will suffice to prove the utter absurdity of such a view. We do not quite share the opinion of those who, on the analogy of State Socialism, call sometimes Municipal Socialism Municipal Capitalism. There is between the State and a municipality that essential difference that the former is an instrument of class-domination and, therefore, will use whatever it lays its hands on for the benefit of the capitalist classes, while the municipality is the local community itself possess­ing delegated and purely administrative powers to look after the general good order of the locality. This being so, municipal undertakings cannot strictly be regarded as capitalist concerns. They may yield a profit, as they do; but that profit, though actually aimed at, is neither such an absolute necessity for the municipality as it is for the private trader - it can at any moment be done away with, as it sometimes is - nor, even if retained, constitutes, in view of its being further used for the public good, a proof of the capitalist character of the undertakings. Such a profit in the shape of surplus-product may well arise even in a thoroughly Socialist society, when, for instance, it has to exchange goods with an, as yet, non-Socialist community. Nevertheless, municipal undertakings are far from being Socialist concerns, and do partake of a capitalist character. That is for quite different reasons to those usually assigned. Chief among them is that the present-day society is itself not a Socialist society. In a Socialist society not only all are consumers, but all are also producers. Everyone works and everyone consumes. To carry on produc­tion "for the benefit of the community" means, in a Socialist society, for the benefit of the community both as consumers and as producers. Is it the same in the present society? Certainly not. Everyone consumes to a greater or smaller extent, but not everyone pro­duces, and it is precisely those who do not produce any­thing that consume most, whilst those who produce all consume least. To carry on production "for the benefit of the community" in such a society means, therefore, to carry it on for the benefit merely of the consumers, of whom the largest are non-producers, while the producers, as such, are left out in the cold. In other words, the "benefit of the community" is being provided for at the expense of the producers. The latter are exploited just the same as under private capitalist concerns; they have to yield their surplus-labour, and that to the capitalist class, in an exactly similar way. At the same time this is no mere accident from which municipal production could escape, as it can escape yielding profit. If the latter is done away with, there still remains the repayment of loans for which the workers have to supply the means by their unpaid labour; and if the repayment of loans is done away with at the end of 30, 40, or 60 years as the case may be, there still remains the profits of the various capitalists, embodied in the constant capital of the undertakings, which the workers engaged in them have to supply through their respec­tive municipalities. And from that there is no escape so long as the present capitalist society exists. Thus the workers must always yield their surplus labour, and municipal undertakings must always bear the stamp of the capitalist Cain on their brow. There is no more possibility, at present, of carrying on pro­duction in a certain branch of industry on Socialist lines, than of planting a Socialist community in a capitalist world.

And this leads us to the consideration of the possi­bilities of Municipal Socialism, as distinguished from its actualities, just considered. What are they? It is expected that by municipalising one branch of pro­duction after the other, the entire national produc­tion may be brought under the collective control of the communities, and the Socialist Commonwealth inaugurated almost imperceptibly. That may be quite right. A single branch of industry, when munici­palised, will not yet thereby, as we have seen, lose its capitalist character; but all branches of industry, when municipalised, may undoubtedly do so. The question, however, precisely is, whether such a thing as the gradual municipalisation of one branch of pro­duction after another is at all possible, and to this we must reply in the negative. It is one of those sweet little utopias in which certain well-meaning and good-natured people have been indulging for some time past, partly through a misunderstanding of Marx's teaching about the dialectical continuity of the social process and partly by reason of the apparent willing­ness of the ruling classes to meet them half-way. Such is the utopia of the present-day political demo­cracy, leading up gradually to the conquest of poli­tical power by the proletariat; such is also the utopia of the system of collective bargaining gradually build­ing up republican workshops; such, lastly, is the utopia of imperceptibly transforming the organisation of production by ever-extending municipalisation. In all these cases the above people, generally so proud of their contempt for theory and of their strict adherence to facts, do not see the one supreme fact governing the situation, namely, the implacable antagonism between the classes (just like their predecessors of the pre­Marxian era, - how extremes do meet!), and think it possible to smuggle in the Social Revolution, gradually and imperceptibly. Fortunately, life has of late administered to all these pleasant illusions a rather rude shaking, and many, who formerly entertained them, have now become largely cured. The grand possibilities of political and industrial democracy are now very much at a discount, and so are, after the recent attack of the Times, also those of municipal democracy. People are beginning to understand that what has been guiding the propertied classes in this municipalisation business, all along, was not a hazy Socialist instinct, but the very material considerations of municipal finance, and that accordingly, as soon as some vital capitalist interests are touched the freedom of the municipalities to engage in trading business will be restricted. That is what is actually now happen­ing. It is, indeed, no mere accident that the attack on municipal trading has been delivered now. It is precisely now that the powerful development of the electrical industry has opened a new and immense field of speculation for the ever hungry capitalist classes, whilst at the same time placing a veritable Aladdin's lamp in the hands of the municipalities. No wonder that a collision took place on this field, and the capitalists cry to the municipalities "Halt!" There is not the slightest doubt that the era of Municipal Socialism is rapidly coming to an end, and the hopes of the Fabianesque Socialists will be nipped before they have attained their full bloom. The possi­bilities of Municipal Socialism are just as illusory as its actualities.

Well, we have finished. We did not intend writing at such length; but then the subject is really big, and we had to fight both our enemies and friends. Let us hope that our remarks will do some good to both.



[1] Municipal Corporations (reproductive undertakings), 398.

[2] 378,381 plus 4,433,724 (repayment of capital, etc.), minus 193,274 included in the latter figure for depreciation.

[3] The Municipal Journal, October 31, November 7, 14, 28, 28, 1902.

[4] The Municipal Year Book, 1903, pp.686 and following.