Social Control of Public Utilities

In determining whether a given industry is subject to this coercive law of public utility the courts have adopted certain, practical tests of both a legal and an economic nature. The eco nomic tests look to the presence of elements of natural monopoly in such number and strength that competition can not work suc cessfully. Under these conditions fair prices, in the sense of competitive prices, are not realized. The power of the State will be used either to regulate industries so as to restore equality of bargaining power by maintaining competition and controlling corn petitive practices, or used to promote the inherent trend toward monopolistic organization by conferring upon such industries legal monopolies and then controlling their economic relations by means of the system of rights and duties just outlined.

From an economic point of view it is clear, therefore, that the notion of a public utility is made up of two ideas: (a) the idea of monopoly and (b) the idea of common necessity. Both must be present in order that an industry may become a public utility. Neither alone will suffice. The supply of housing facilities is a necessary economic function, and when it is furnished upon a competitive basis the customer is not coerced. But when, in emergencies such as the acute housing shortage (see Houspro) during the World War, the consumer is forced to bargain for a necessity under conditions of temporary monopoly, the courts will uphold the regulation of rents. Yet the character of regulation will be attuned to the normal condition. The emergency having passed, as building operations are resumed, competition again sets in, and the reason for regulation disappears. The housing industry therefore represents a border line case which, neverthe less, ought not to be classed as a public utility under normal conditions.

Legal Conception of a Utility.

When freedom of choice is seriously restricted—that is, when the coercion residing in private property makes itself felt as a monopolistic power—public inter est arises in proportion as equality of opportunity to choose is re stricted, provided that the wants supplied are recognized as a common necessity. Monopolization of a luxury will not call forth regulation, for public opinion is the arbiter in the selection of those common economic needs whose monopolization engenders regulation. The concept of public utility thus becomes a legal instrumentality to achieve an improvement of the standard of life. In a society which is accustomed to look to governmental initia tive for the supply of common needs, the facility will be supplied as a public function. On the other hand, a society which is dis

trustful of the State will leave the supplying of such common needs to a private agency under a franchise privilege, not as a matter of common right, but as an agency of the State.

Since the law has long recognized the rights and duties of pub lic utilities, this legal conception has attained a certain fixity in the form of legal rules. But the number and kind of industries that may be subjected to these rules is not fixed. It may be said that the legal notion of public utility is that of a fixed concept with a chang ing content. The industries at any time recognized as "clothed with a public interest" are not necessarily the industries which may legally be classified as public utilities. at another time. The indus trial and political situation as mirrored in public opinion will de termine : (a) the number and kind of industries classified as pub lic utilities; (b) the elaboration of the system of rights and duties which make up the institution; (c) the regulating agencies and instrumentalities employed (whether the legal rules and decrees of courts or the charters, special franchises and statutes of legis latures) ; and (d) the subordinate administrative standards which are evolved in practice. The trend in the development and appli cation of the institution will be a resultant of the amount of social inertia, of the pressure of the economic environment and of the influence of intellectual progress. Special attention should be directed to these dynamic factors : (a) the growth and extension of monopoly; (b) war and other conditions creating special emergencies; (c) the movement for conservation of natural resources; (d) the movement for public ownership.

Regulation in the United States

is accomplished in three distinct ways (I) judicially by means of suits at law where the common law duties and rights of public utilities are applied in specific cases; (2) legislatively by means of corporate charters or special franchises; (3) legislatively by means of the police power of the States or its Federal equivalent, the power of Con gress over interstate and foreign commerce. Judicial regulation is the oldest and constituted almost the only form of control during the first half of the 19th century. Legislative regulation has now largely supplanted judicial regulation, but the latter remains in the background as a potential agency which may become active again if legislative regulation should disappear. The function of the judiciary by 1928 had been restricted to the review of legisla tive and administrative acts.