Tuesday, January 29, 2013

More Laissez-Faire!

American financiers today are merely following in the footsteps of their British Brethren from a century and more ago.

(Reginald Reynolds, "The White Sahibs in India")
By 1931 the total capital expenditure by the State on railways stood at nearly £600,000,000. According to Sir John Strachye's Finance and Public Works of India the railways built by State enterprise between 1869 and 1881 involved a total outlay of £26,689,000. The rest of the railways were, in the great majority of cases, built by Guaranteed Companies, most of them having since been purchased by the Government.
The nature of the contracts by which these Guaranteed Companies built Indian railways is probably unique in the history of financial operations.  The Company would be guaranteed an interest on its capital by the Indian Government at a rate which was itself excessive when compared with the prevailing market rates.  Free land would be granted by the Government thus obviating the principal difficulty with which the railway speculator usually has to contend.   If and when the railway showed a profit, that profit was the property of the Company; but when there was a loss the Company's dividends would be paid from the Indian taxes.   Thus with the minimum of cost to themselves, a group of financiers could, without any of the normal risks of speculation, invest their capital with the certainty of a minimum dividend and the hope of a surplus.  The people of India, who were their sleeping partners in this astonishing arrangement were compelled to balance the shareholder's losses and to produce, in addition, substantial dividends for them out of their taxes.
 The result, as per British government committees' own reports, is that the government in India found that it itself could construct railway lines at £4000 per mile in identical terrain that the private parties spent £18,000 per mile.

Let us recall that the contractors to the US Government of Occupation in Iraq had similar deals - cost-plus contracts - and the Iraqis were going to pay for these.  The Iraqis, however, were uncivilized enough to blow up Americans and Iraqis alike, and I think it is the American taxpayer who has had to foot the burden for the Bush fat-cats.

PS: the British added all of this to the Indian debt; the interest on the railways alone amounted to £40,000,000 per year. Most of Britain's Asiatic wars were also charged to India and paid for by the Indian peasant.