|
CHAPTER III
PRIVATE PROFITS AND PUBLIC GAIN
CRITICISM of the Gothenburg System as a whole must
necessarily be based on (1) principles and (2) actual results,
and prominently among the former one must place the assumed
elimination of all motives of private interest. Here the
first question to be asked is, Has such elimination really
taken place ?
If those who financed the companies did so without expecting
any return whatever on their money, and gave us reason for
assuming that they were actuated by philanthropy pure and
simple, one could more readily accept the theory of an entire
absence of private interest. But the 5 per cent, which is
assured to them before any question arises with respect
to actual profits is by no means a bad return from a financial
point of view, especially as no real risk is run. It is
conceivable that a very large number of persons with money
to invest would be only too glad to have the opportunity
of a ' good thing' such as this without making any pretence
that they were merely seeking to promote the welfare of
their fellow-men. Such a position becomes still more tenable
when one thinks of the enormous sums of money invested in
commercial undertakings which do not yield anything like
5 per cent. Taking the case of ordinary stock in the railways
of the United Kingdom, I find that in 1905 no less than
£56,691,000 received no interest or dividend at all;
on £16,969,000 the amount of dividend paid did not
exceed 1 per cent.; on £42,821,000 it was between
1 and 2 per cent.; on £126,692,000 it was between
2 and 3 per cent.; and on £78,934,000 it was between
3 and 4 per cent. To talk, especially, to the holders of
the £56,000,000 ordinary railway stock yielding no
return whatever about the beneficence of the shareholders
in the Gothenburg System companies who are ' content' with
5 per cent, preference dividends would be something like
a mockery. Even in the case of the highest yielding companies
in the United Kingdom stock can hardly be bought now to
yield 5 per cent., and this notwithstanding the recent heavy
decline in prices.
Certain it is, also, that such a return on capital compares
favourably with that which is obtained from investments
in other companies in Norway, at least. Writing on this
subject in 1893, Mr. Michell, then Consul-General at Christiania,
said:
' A preferential payment of 5 per cent, on the shares of
the association is an exceedingly strong inducement for
promoting the prosperity and extension of the associations.
Their 400-kronor (about £22) shares have never fallen
below par, and'when money is cheap they fetch as much as
430 kronor in the financial market.
' The right of the municipalities to buy up at par, within
a certain number of years, all the shares of an association
alone prevents the shares from being constantly at a premium.
' The best Government securities (loans) and the bonds of
the Land Mortgage Bank of Norway do not yield a higher rate
of interest than 3 to 4 per cent. Their value is at the
same time liable to be swayed by a variety of circumstances.
The financial credit of Governments, as well as that of
land mortgage banks, comes and goes, but as drink is likely
to go on for ever to an extent, at least, that cannot fail
to give its vendors a benefit of 5 per cent, on invested
capital, it is not surprising to find that all towns in
Norway have been eager, if only from that point of view,
to avail themselves of the advantages offered by the Gothenburg
System.'
The idea, therefore, of shareholders having no private interest
in the liquor business merely because they are willing to
accept ' only' 5 per cent, is really absurd. One must remember,
again, that the Gothenburg System companies have played
an important local role as distributors of the profits for
public purposes, securing in this way a position of influence
in the community that might almost be regarded as equivalent
to a substantial bonus. For a man wanting to secure a certain
position in a small community (in addition to 5 per cent,
for himself), nothing could suit his purpose better than
to become a leading member of a licensing company.
Then it is assumed that if the licensing business is only
left in the hands of Governments or municipalities there
will be a complete disappearance of any desire for financial
gain, and that the good of the community will be the sole
aim kept in view. Such an assumption is wholly inconsistent
alike with past history and present experience. The fact
is, rather, that Governments in all lands have generally
been as keen to raise revenue out of the liquor trade as
any private individual could be to secure profits for his
own pocket, and this tendency on the part of Governments
has been reproduced more or less under the various modifications
of municipal control of licenses.
Mr. Michell said on this point in regard to conditions in
Norway :
' The municipalities themselves are strongly interested,
not only in the establishment of associations for the sale
of spirits, but also in their prosperity.
' The larger the surplus at the disposal of an association,
the greater are the benefits which the town expects to reap.
Roads, parks, waterworks, railways, schools, museums, etc.,
are priceless benefits in a country relatively so poor,
and in which taxation, local or central (already very high
in towns), cannot always be resorted to for the attainment
of such objects.
'The favour with which the municipalities and the Government
itself regard the associations in question facilitates the
establishment of their dealings on a basis satisfactory
to all parties concerned—namely, the shareholders,
the municipalities, and the central Government.'
He gave one or two illustrations of how the liquor business
was, at that time, really being promoted, in spite of statements
to the contrary, and went on:
' On all the above grounds it may boldly be asserted that
the original, purely philanthropic, object of the associations
(considered collectively) has been gradually departed from,
and that the old licensed victualler, often under circumstances
of great hardship, has been replaced throughout the great
part of the country by hundreds of
holders of 5 per cent, shares, by administrators practically
and otherwise interested in the distribution of larger and
larger surpluses from the sale of spirits, and by municipalities
well content to improve and embellish their towns without
recourse to direct communal taxation for those purposes.
The Rev. Joseph M'Leod, a member of the Canadian Royal Commission
on the Liquor Traffic in Canada, wrote of the system in
his minority report:
' However unselfish the original intentions of the Gothenburg
System, there is much reason to believe that, as at present
managed, it is simply a profitable monopoly of the liquor
traffic, in which the shareholders in the companies, the
municipalities, and the central Government participate';
while in his' Conclusions/ set forth in this report, he
said on the same subject:
' The original purpose of the system has largely been lost
sight of. Intended to save the liquor traffic from the dangerous
features supposed to arise out of the greed of individual
licenses, it has degenerated into a system to encourage
and satisfy the greed of shareholders scattered all over
the country. It also appeals to the cupidity of municipal
authorities and to that large class, found in every community,
who think they see in the revenues derived from the traffic
a relief from taxation.
Then the House of Lords Committee on Licensing said of the
Gothenburg System:
' It cannot be denied that the almost universal adoption
of this system was not due simply to the desire of promoting
temperance, but also, and perhaps mainly, to the hope of
applying the large profits derived from the sale of liquors
to the reduction of local taxation.
Other authorities have been no less condemnatory, and I
am bound to say, as the result of my own investigations,
that the whole system certainly does lend itself to a good
deal of criticism from the financial standpoint. Whatever
view may be taken as to the ' elimination' of direct ' private
profit,' it must be admitted that there has been substituted
for it (assuming such elimination to have taken place) a
public gain which is really only private advantage in another
form, and is, in effect, proving an even stronger incentive
for the conduct of| the business on strictly business lines.
Instead of private individuals, whole communities are now
interested in the profits, to which they look as a means
either of keeping down the demands jnade upon them by the
rate-collector, or of securing a host of public improvements
or ' charities ' which they would otherwise have to pay
for or support out of their own pockets, if they wished
to have them at all. Assuming that the communities do not
really want to ' press' the sales, there are local expressions
of regret if those sales go down and the available profits
decrease. The ' brandy money' has become, in fact, a most
important element in municipal finance, and, although the
salaried officers of the Bolag may proclaim absolute indifference
whether the profits are £5,000 or £10,000 more
or less in a year, I doubt if a local municipality regards
the matter from quite so independent a standpoint. The whole
idea of 'disinterested management' has proved to be only
a delusion and a snare.
A significant story as to the way in which
matters have been worked is told by Dr. Gould in respect
to an incident that once occurred at Sogne Fjord, Norway.
A physician asked the local company for a contribution towards
a certain hospital in which he was interested, but the company
pleaded lack of funds. At that time it was usual to close
the spirit bars and retail liquor shops in Sogne Fjord whenever
the fishermen returned home with successful catches, so
that they should not spend their money in drink. Acting
on a suggestion made by the physician, the company withdrew
this regulation, kept the places open on the said occasions,
and increased their business to such an extent that in due
course they were able to let the doctor have the desired
subscription.
Some years ago the prohibitionist party in Norway, as the
result of persistent agitation, secured a vote of no-license
in several of the smaller towns, and the ' Samlags' were
consequently closed. Much ill-feeling was caused thereby,
but the main grievance advanced by the press was that the
communities had lost large sources of income, and must either
do without advantages previously enjoyed, or pay for them
out of their own pocket.
The number of towns in Sweden where the Gothenburg System
is now in operation is 101. In fact, there are only seven
towns in Sweden with a population of less than 1,000 each
where it has not been put in force. One is asked to assume
that these 101 towns have all been inspired by purely philanthropic
motives in what they have done. But, when one looks at matter-of-fact
details, one finds that the net profits on such philanthropy
amounted, in 1905, to 11,338,860 kronor (£629,936).
This was in addition to 440,237 kronor (£24,458) which
the Bolags had already paid on liquor duties, so that the
gain to the communities represented a total of 11,779, 097
kronor (£654,394).
It would be really childish to expect one to believe that
these very substantial pickings have not influenced the
local communities in any way. I asked a leading citizen
in Gothenburg what would be thought of the position if the
temperance societies in Sweden were suddenly to convert
all the working classes to total abstinence from brandy-drinking.
A look akin to consternation came over his face as he replied:
' I do not know what we should do without the brandy money.
We depend on it for so many things.' While, however, there
has been every inducement hitherto for the towns to work
the trade on business lines (philanthropy notwithstanding),
there has for some years past been great dissatisfaction
on the part of the country districts because they have not
participated to a larger extent in the financial benefits.
Farmers and farm labourers, they say, go to the towns for
their branvin, and not only do they take their money out
of the district, but the municipalities gain the advantage.
There is also a party which holds that the State acted unwisely
at the outset in allowing the local authorities to have
the handling of so much money. The profits should, they
argue, be used to a much greater] extent for national, in
preference to local, purposes. This argument would
probably have prevailed years ago but for the influence
of the municipalities.
The somewhat undignified quarrel that has taken place over
the profits of a business which Swedish ' philanthropy'
would have us regard as pernicious has been one of the reasons
for the passing of a new Liquor Act, to come into force,
in towns, on October 1,1907, and, in the country, on November
1, 1907. Without going into somewhat complicated details,
it may be said that under this new law the towns will be
able to keep only a substantially smaller proportion of
the Bolag profits for purely local purposes, and will be
required to send much more to Stockholm than they do at
present for distribution among the rural districts. Thus
the latter will gain at the expense of the former, though
the effect will be (as even one of the most earnest supporters
of the Bolag system admitted to me) that ' the towns will
have less inducement to try to make money out of the traffic.'
Under existing conditions, the Bolag at Gothenburg gives
seven-tenths of its profits to the town authorities, one-tenth
to the county agricultural society, and sends the remaining
two-tenths to Stockholm for division amongthe country parishes.
It is estimated that for 1906 the seven-tenths thus to be
paid into the town treasury will be £46,666, of which
£20,291 will be used for the ordinary purposes of
local government, thus presumably keeping down the demands
on the ratepayers, and £26,375 will go to local 'philanthropic
' purposes, included in this definition being schools (one
of which gets £6,000), institutes for working men,
domestic economy classes for workmen's children, meals for
poor children, Bolag reading-rooms and waiting-rooms, concerts
for working people, parks, a home for consumptives, a labour
bureau, museums, libraries, subsidies to lawyers who give
gratuitous advice to poor people, a committee for the encouragement
of sports, and so on.
But for the existence of the Bolag system, various of these
objects would, as in England, have to be met either directly
out of the rates or out of the purses of the charitable.
The individual members of the community, therefore, have
a direct pecuniary interest in regard alike to the £20,291
added to the municipal revenue and to the £26,375
devoted to local 'philanthropic ' purposes. Whether they
want to 'press' the branvin traffic or not, the fact remains
that the greater the profits the more they will collectively
and individually benefit. I fail to see, therefore, how
it can really be said that the Gothenburg System ' eliminates'
the element of ' private gain.' There is ' private gain'
to every person in the local community upon whose purse
fewer demands are made because of the branvin money being
available, and the talk about ' restrictions ' on the traffic
must be considerably discounted by the fact that any sudden
cessation of the profits would be regarded by the general
body of ratepayers and citizens in the light almost of a
financial disaster.
One resident in Gothenburg, who had watched the system for
many years, said to me, when I asked for his candid opinion
:
' Taking the movement as a whole, there is too great a leaning
towards profits. To-day there is very little philanthropy
in the affair. If they would only give up the idea of making
money out of the business, they could do a great deal more
to promote the sobriety of the people.'
A similar view seemed to be taken by a Salvation Army officer,
who, in answer to my question as to whether or not he thought
the system was doing good, replied:
' I do not think the Bolag is making much for temperance.
In one respect it places more difficulties in the way. When
the trade was in the hands of private individuals we could
go to them whenever we saw anything wrong, and make a personal
appeal to have the matter remedied. But the Bolag is a different
matter. The leading people in the place are connected with
it, and they will tell you how much good the brandy-money
is doing in the way of public improvements or in maintaining
charities. As to raising the prices of the spirits sold,
I do not think any real good is done by that. When the men
want drink they will get it, whatever the price. If the
time should come when they really cannot afford to buy branvin,
they will have methylated spirits instead, and that is much
worse for them. If, again, you keep them from the bars,
it means they will take more spirits into their own homes;
and, though this may reduce the risk of bad companionship,
it will have a bad effect on the children. Much more useful,
in my opinion, is the reduction in the alcoholic strength
of the branvin,* but no really lasting reform will be brought
about until you get down to the hearts of the people.1
* The alcoholic strength of the branvin sold by the Gothenburg
Bolag stood at 47 per cent, from 1866 to 1883. Since then
reductions have been made as follows: 1884, 46£ per
cent.; 1888, 45 per cent.; 1899, 44 per cent.; 1902,43 per
cent.; 1904, 42 per cent.; 1905, 41 per cent.; 1906, 40-2
per cent.
For still another view on the general subject I take the
following from an address delivered by the Rev. Elis Heuman,
Court Chaplain, at a temperance meeting held in Stockholm
in April, 1905:
' Who is it that causes the public-houses to be embellished
so as to become elegant and inviting in order to allure
men and women away from their less decorated and more humble
home ? Who is it that distributes public-houses all around
the church, and gives the traffic the misleading name of
the " Gothenburg System "? Is it not Society yearning
after vile profit ? And if anyone desires to substitute
a dram-shop by a temperance eating-house, Society does not
permit this to be done. Every proposal in any such direction
is made in vain. It would diminish Society's profits on
the traffic in intoxicants.1
The extreme keenness of local authorities to get these profits
into their own hands is well shown by an incident for the
truth of which I can vouch absolutely. An Englishman settled
in Sweden had the disposal (as trustee) of some hotel property
in a town of 3,000 inhabitants, and he put it up to auction.
The sale was attended by a leading member of the local municipal
body, who tried so successfully to depreciate the value
of the property that he was the only bidder, though the
bid he made was so absurdly small that it was refused. Steps
were then taken to effect a sale by private treaty, and
a widow lady agreed to purchase, if she could make sure
of a license. On the strength of a letter written by a member
of the municipal council, stating that the license would
certainly be granted, she bought the property ; but there-
upon the council repudiated the letter of the member in
question, and definitely refused the license. In the end
the lady was obliged to let the municipality take over the
place on their own terms.
This may or may not be an isolated case ; but it illustrates
the risks that are run where a local authority has a powerful
financial incentive to get control of the trade, or even
a portion of the trade, in alcoholic drinks. Nor can the
fact be denied that abuses of other kinds have been introduced
into the application of the system in Sweden, especially
in the case of small towns, where the rents of Bolag premises
have been manipulated to the advantage either of the municipality
or of private persons; where the ' companies' have consisted
of two or three individuals ; where the representatives
of particular distilleries have joined in the movement with
the idea of getting contracts ; or where profits have been
distributed among charities started in the interests less
of the poor than of the salaried officers. While it is admitted
that such practices did, unhappily, prevail at one time
(See Appendix), it is said they do not now
occur; yet, when I mentioned the subject to one gentleman
at Gothenburg, he at once pointed to a paragraph in a local
newspaper of the previous day, stating that the accounts
of two Swedish Bolags (the names of which were given) had
just been condemned by the auditing authority, and the matter
had been referred to the King. It is not a little significant,
also, that, at the end of forty years' operations, the necessity
should have arisen practically to reconstruct the system
in one of its most essential features, the distribution
of the profits, so as to check the rapacity of the towns,
and satisfy the rival claims of the State and of the country
districts.
How the profits have worked out in the case of the Gothenburg
Bolag is shown by the following table, which I take from
the official report for 1905:
GOTHENBURG BOLAG PROFITS AND PRICES.
It will be seen from this table that the net profits of
the company, given in pounds sterling, increased from £2,821
in 1866 to £73,249 in 1905.
The reader will further observe that since 1866 the company
have made substantial advances in the prices charged for
their branvin, whether sold at the bar or in the bottle.
The reason given for these advances in price is that the
company have been inspired by a philantnropic wish to check
the consumption; and this, they say, they have done. But
it will be seen that this policy has in no way checked the
profits, which have swollen substantially with each such
advance, whether regarded from the point of view of sum
total or per litre sold. Possibly the company would have
us believe that this very substantial increase in net profits
is one of the inconveniences to which philanthropy must
be prepared to submit when it is working for the public
good—on business lines. This at least is certain, that
each increase in price throws a greater burden on the consumer,
to the advantage of classes higher in the social scale.
Whatever the precise view taken of the steady advance in
the price of branvin from time to time, one undoubted effect
thereof on habitual drinkers of the most hardened, as well
as of the poorest, type has been to cause them to leave
the more expensive branvin for special domestic or other
occasions, and take to the cheaper methylated spirits as
a steady drink. The cost of a litre of methylated spirits
in Sweden is from 35 to 40 ore the litre, as against 1 kr.
35 ore the litre for branvin. ( 100 ore = 1 krone = 1s 1-1/3d).
The patron of the former in Sweden first of all obtains
some bones, and burns them to powder, through which he filters
the methylated spirits, thus depriving them of part of their
most noxious taste. Even then the effects (I was told) are
' horribly intoxicating.'
Not so many years ago there was a remarkable and, at first,
unaccountable outbreak of drunkenness in the parish of Lindome,
near to Gothen-burg. It was known that no exceptional quantity
of branvin had been brought into the place, yet the amount
of insobriety was far in excess of that in other parishes
in the neighbourhood. Inquiries eventually showed that a
large proportion of the local artisans, carpenters by trade,
had given themselves up to the drinking of methylated spirits,
their intoxication thus being accounted for.
Opinions differ as to the extent to which the consumption
of methylated spirits has been carried in Sweden. In some
quarters I was assured it was ' enormous.' On the other
hand, the chief of police at Gothenburg told me that he
had given instructions to his force to distinguish in their
reports between drunkenness arising from methylated spirits
and drunkenness due to other beverages (a difference easily
noticeable on account of the odour of the methylated spirits),
and he had found there were not very many cases of the former.
I suspect the real truth lies between the two statements,
and that, inasmuch as the methylated spirits would be consumed,
not at public bars, but in private houses, much may be taken,
and much drunkenness caused thereby, without the matter
coming under the notice of the police in the streets. In
any case the evil has gone so far that in the new Act which
comes into force in October, 1907, the statement is made:
' With regard to the conditions of selling so-called methylated
spirits, H.M. the King has issued special regulations relating
to this traffic.' There would surely have been no need for
these special regulations unless the mischief had undergone
serious development. The resort to substitutes for branvin
has not been so great in Sweden as in Norway, the restrictions
on the sale of native spirits being less severe in the former
country than in the latter; but in considering the official
figures as to consumption of branvin the point here mentioned
must certainly not be overlooked.
|
1745 
Back 