Chadwick's Policy Proposals

Chadwick's Policy Proposals: Applications of Contract Management

Water Supply Chadwick's investigation into the conditions of water supply and public health in London revealed that the problem was one of natural monopoly. Thus he regarded competition within the field as inappropriate. He found the field of service currently divided among seven separate companies, several of which had become multiform monopolies, duplicating one another's facilities, so that two or three sets of pipes ran down many streets, doling out insufficient supplies of water of inferior and often unwholesome quality. Chadwick estimated that consolidation under the principle of contract management could save £100,000 per year, which could then be used for exploration and development of new water supplies.

Chadwick noted that municipal gas companies in the city of Paris competed under an almost identical situation of natural monopoly. There a government study into the cost and supply conditions of several independent gas companies found the charges excessive. The city then undertook consolidation according to Chadwick's princi­ple, with the result that customer charges declined 30 percent, the quality of gas sup­plied improved, and the value of shareholders' assets was raised by 24 percent ("Re­sults of Different Principles," p. 388). Chadwick presented additional evidence of two gas companies in northern England whose prime cost of supplying gas dropped by almost two-thirds after effecting the kind of consolidation he championed.

His proposed administrative reform of London water was rejected, Chadwick claimed, owing to the vigorous protests of vested interests. As if to get the last word, Chadwick asserted that retention of the traditional form of competition over the decade of the 1850s burdened consumers with higher prices, stockholders with un­safe returns, and the public with inadequate improvements in water quality and de­livery systems.

Railroads In the 1860s, Chadwick became the leading British proponent of the nationalization of railroads. His argument did not support government operation of the railways but rather consolidation under the principle of contract management. In Chadwick's view, railroads were a natural monopoly characterized by disunity of management and wasteful competition. However, he was unwilling to allow a coin­cidence of ownership and administration. On the surface, he appeared to be in the best tradition of laissez faire when he argued that "the Government is utterly inca­pable of any direct management of manufactures, or of anything else of an admin­istrative character" ("On the Proposal That the Railways Should Be Purchased by the Government," p. 202). At the same time, however, his proposal called for con­centration of authority in the hands of a central administration. By 1860, moreover, Chadwick could cite the government's successful implementation of a contract man­agement scheme for the provision of postal services. (For yet another example of Chadwick's principle, see the box, The Force of Ideas: Chadwick on Franchising, Then and Now.)