Across the Borders: Financing the World’s Railways in the Nineteenth and Twentieth Centuries (review)

Railroads have enjoyed a revival over the last quarter-century, and railroad history has experienced renewed interest as a result. The volume under consideration in this review is a collection of papers delivered at the first meeting of the International Railway History Association. Its theme is international direct investment in railway enterprises; in their introduction, editors Ralf Roth and Günter Dinhobl claim that this is a forgotten area of historical analysis. Considering that the contributions are overwhelmingly based on secondary literature, some of it very well known, that assertion cannot be sustained.

The editors also make other, very ambitious claims concerning the supreme importance of transportation history and the railway as a transnational communications network in the nineteenth century. The global financial crisis raging as this review is written, combined with the railroads’ need of constant capital inputs for renewal of assets, undermines the first contention. Technical incompatibilities, tariffs, and competition among domestic systems, even when owned by governments, refute the second claim. In addition, as Konrad Jarausch has pointed out, the transnational concept is not well defined. Of the eighteen chapters, seven merit the attention of the reader not versed in the literature.

The contribution by Francisco de los Cobos Arteaga and Tomás Martinez Vara on investment in Spanish railways in the late nineteenth and early twentieth centuries, based on primary sources, shows how government subsidies provided incentives to private, mostly foreign investors, to reap profits from railway construction projects. Actual railway operation was a losing proposition. This is a clear case of building ahead of demand in response to government incentives, a phenomenon familiar to those who have looked at the Union Pacific example in the United States. Many of the lines built under this program were subsequently dismantled.

Augustus Veenendaal provides two useful chapters, one concerning Dutch foreign investment in railways and the other on foreign investment in U.S. lines. The former provides a good summary of his Slow Train to Paradise (1995) while the latter offers an excellent overview of the extensive extant literature. These two chapters make clear the high risk involved in foreign investment, the need for intermediaries familiar with the target market, and the long time-horizons necessary for railway investors. As Mira Wilkins made clear decades ago, even what became the world’s largest economy was heavily dependent on foreign sources of capital for its development.

Diane K. Drummond provides a very helpful summary of the literature concerning British foreign railway investment in the nineteenth century. She demonstrates that the most important obstacle in this area of research is the lack of contemporary records, making it impossible to measure accurately both investment volumes and returns. She does provide data for the situation just before World War I that helps clarify matters. Ian J. Kerr contributes a well-written, interesting vignette about the Great Indian Peninsular Railway, showing how a single enthusiastic individual could exert considerable influence on a major project. Robert Lee provides new information using primary sources concerning French investment in Chinese railways in the late nineteenth century. Here we see a politically motivated project earn substantial returns in an economically underdeveloped region. Maria Teresa Ribeiro de Oliveira, despite using a narrow source base of Brazilian law collections, employs Douglass North’s concepts of institutions and path dependency to provide an illuminating discussion of the development of railways in Brazil during the nineteenth century. She, too, demonstrates how government subsidies tied to line construction led to the misallocation of resources, causing significant opportunity costs for the general economy.

As is always the case in such collections, the quality of the components varies widely. Excessive claims for the importance of railroad and, more generally, transportation history can only discredit the field. This aside, some of the contributions to Across the Borders are worth reading because they provide useful introductions to...