decades, Australian securities‘absorbed almost three-quarters of the portfolio
[non-equity] investment that passed through the formal British capital mar-
kets’; moreover, they gained de facto‘trustee’status (Davis and Gallman 2001,
pp. 524, 759–60), so that they could borrow at appreciably lower interest rates
than were paid by South Africa, Argentina, and Japan (Obstfeld and Taylor
2004, pp. 210–13).
The favourable and improving place in thefinancial market—compared
with private borrowers and with most other governments—tilted the balance
against future privatization—a possibility (along with the outsourcing of oper-
ations) variously discussed in the colonies during the latter part of the nine-
teenth century (Clark 1908, p. 404).
Clearly, instead of servicing public railway debt, the state’sfiscal capacity
could be used to meet guarantees made to private lines, as in many places,
including Canada and Argentina.^6 Under either arrangement, losses could be
passed to the taxpayer, thus likely reducing the interest rate demanded by
lenders (and distorting the incentives facing various parties). The state, in
addition to selling or renting land—as could a land-grant private line—could
also capture land values (enhanced by the infrastructure investment) through
export taxes and import tariffs, whose ultimate incidence would fall—
however inefficiently—on the relatively abundant factor, land. And protective
import tariffs were soon adopted in Victoria, as a means of retaining popula-
tion after the gold rushes.
It was an Australian advantage in thefinancial markets, albeit shared, that
the colonies were within the sphere of British law and custom, represented by
the continuing presence of British governors.^7 The colonies’financial reputa-
tions were enhanced by their gathering and publication of reliable informa-
tion about the railways and their wider economic and social situations.
Moreover, there was a very active press. According to Frederic Eggleston
(1932, p. 2), an astute observer and former Victorian railway minister, an
important factor making for efficiency was that the colonial systems were
‘never altogether outside the range of controversy’,so‘its protagonists con-
stantly had to prove their case and as difficult problems arose they were
compelled to devise methods of solving them’.^8
(^6) However, in the Argentine at least, the very fact of foreign ownership weakened the railway
companies politically, in times of crisis or labour con 7 flict (Duncan 1937).
It is a standard argument that the capacity of early modern governments to borrow from their
own citizens was enhanced if the rule of law applied—which gave borrowers confidence in the
transaction; and if the nation enjoyed relatively democratic institutions—so that the borrowers
had regard for the welfare of the lenders (Macdonald 2006). The proposition put here is that the
same conditions also made it easier for the Australian colonists to borrow in Britain. 8
Although highly critical of state socialism with developmental objectives, Eggleston was a
supporter of the‘Australian Settlement’of Alfred Deakin, and approved a reliance on statutory
corporations for non-developmental purposes.
Socialism in Six Colonies: The Aftermath