9.2.6Political Economy
State-owned enterprises are used in the pursuit of government objectives that
can be obtained more easily or more fully than were the enterprise private.
These include purposes in the interest of the citizens generally, like national
defence, national identity or unity, and national or regional economic devel-
opment. But, almost inevitably, state enterprises come to be used to advance
or protect sectional interests: in short, rent seekers.
The colonial railways were large enterprises that were intimately connected
to the everyday lives and livelihoods of citizens; arguably, more intimately
and more widely connected than any other public or private enterprise.
Moreover, because the railways loomed so large in the colonies’financial
accounts, there was a wide public interest in the efficiency and economy
with which the public enterprises operated.
Therefore, the railways and their operation would inevitably be matters of
public and political attention, giving rise to much lobbying—and to a greater
extent than would have been the case were the railways privately owned.
There was (and is) a tension between two desirable objectives—democratic
control and efficiency, once representative and responsible government was
granted (from the 1850s, with Western Australia receiving it in 1890). In
theory and largely in practice, the ministry was collectively responsible for
the actions of government; and a minister was individually responsible for
actions on matters within the specific ministry, and responsible for outcomes,
to the extent that causes and responsibilities could be assigned.
There have been two sources of difficulties of governance, regarding large
infrastructure projects. Thefirst is what economists call‘the agency problem’.
A principal, in this case the minister or government, wishes to build and
operate a railway system; only the engineers—the agents—have the required
knowledge. As a consequence, for decisions about infrastructure generally,
engineering has often been the dominant profession, and not only in Austra-
lia. Specifically, for well over a century, engineers made many of the major
decisions about Australian railways, or, at least, had very significant influence,
whether as senior departmental officers, or railway commissioners, or outside
experts. Many of their decisions were splendid; some, however, put the dic-
tates of engineering above those of economics.^18
The second governance problem arises because the benefits and costs of the
railways were large and unevenly distributed.
It is useful to distinguish three types of benefits (each with their concomi-
tant interest groups): benefits that were distributed narrowly; those distributed
(^18) Blainey (1966, p. 245) outlines how, although NSW, South Australia, and Victoria had
originally plumped on a common (‘Irish’) gauge, they ended up with different gauges: it was all
the fault of a new (Scottish) chief engineer in NSW.
Jonathan Pincus