The role of Britain and France in the finance of Portuguese railways, 1850-1890: A comparative study in speculation, corruption and inefficiency.

The object of this thesis is to study the underlying trends in railway finance in Portugal between 1850 and 1890. During these 40 years the building of the trunk lines was completed, with over 2,000 kilometres in operation at the beginning of 1890. Schemes for railways in Portugal were put forward in the mid-1840s but the unstable political situation, which culminated in a Civil War in 1847, delayed the commencement of railway services until 1856. Because of Portugal's continuing critical financial situation and the consequent meager resources of the Portuguese Treasury railway construction was largely financed by foreign capital. Allowing for the imperfection of the data it would appear that at least a third of total investment in Portuguese railways would have been financed by foreign investors. Both British and French railway promoters and speculators dominated the scene and set the pace for railway development throughout the period covered in this study. The initial railway schemes were experimental and then developed erratically, with an absence of a consistent and sustained railway policy on the part of the Government. Locomotives and materials, as well as the capital required for the construction of the lines, were first imported from England, but from the early 1860s France became a major supplier of capital, relegating Britain to a position of a supplier of coal and rolling stock. This contrast between British and French investments, however, may in some ways be misleading. Overall, in both Iberian countries it seems reasonable to argue that the success of French railway schemes was partly due to the support, direct or indirect as the case may be, of English financial houses. Although Rondo Cameron's extensive study placed France as the supplier of capital for railway building in Spain, with further research serious doubts have emerged as to the nature and financial connections of the capital invested there by the Credit Mobilier and other French investment banks. For Portugal, however, the present study suggests that the distinction between British and French investments hardly stands. It seems difficult to differentiate the nature of foreign capital invested in the Portuguese railways and it appears more reasonable to conclude that foreign investments were the product of an Anglo-French financial alliance formed by investment banks which envisaged the control of railway services in both Portugal and Spain. The nature of Portuguese railway finance is also linked with the successive failures of the Portuguese Government to establish an adequate railway policy with the result that the cost of the lines built by foreign private operators, but with a government subsidy, was substantially higher than the cost of state-lines. This study will demonstrate that a least 4.1 million could have been saved throughout the 40 years between 1850 and 1890, if the state had embarked on a program of direct railway construction. In annual terms the amount mentioned above represented over 20 per cent of the budget deficit and around 3.5 per cent of the service of the consolidated debt between 1877-78 and 1889-90. Further, this study will show that the high cost of construction was also the result of high interest rates, over seven per cent, paid on state bonds. This, in turn, explains the lack of private railway entrepreneurship and investors' preference for an indirect investment which produced higher returns than those offered by the equity capital of the private companies. The nature of Portuguese railway finance is ultimately connected with the dependent peripheral condition of 19th century Portugal which, like in all European peripheral countries, made the railway a leading sector to animate the economy and propelled industrialisation forward. The outcome of this relationship, however, varied widely in the peripheral areas of Europe and no general pattern can be established with respect to either the finance or the impact of the railways in various peripheral economy countries. In Portugal, the conditions surrounding the building of the network resulted in a speculative, inefficient, uneconomic, costly and foreign-orientated railway system.