There have been some remarkable retorts to President Obama’s assertion at a campaign event in Roanoke, Virginia, on July 13,
In fact, the context is larger than just this one speech in Roanoke by the President. For example:
Sure, government can do big things like win World Wars I and II, land on the moon and kill Osama bin Laden. But based on recent assertions, Obama has completely forgot that the marketing of the automobile, inventing television, inventing the airplane and the discovery and later marketing of electrical power -- all done outside of government -- are not only big things, but have led to much prosperity and yes, even greatness.
Now let’s turn to the still larger context – that of the two-century sweep of American history. We’ve grown up in a world where the federal and state governments have paid for a great deal of infrastructure. It leads someone like the President, the Vice President, and Elizabeth Warren to conclude that this has been so throughout our history. That has not been the case. And, with regard to the foreseeable future, it will not be the case. As we will see in a brief historical overview below, transportation and communications infrastructure by and large started as private endeavors. The federal and state governments became more involved. But within the past decade or so, there have evolved “public-private partnerships.”
We should note that the U.S. Constitution, in article I, section 8, specifically grants Congress the power to establish postal roads, but there were doubts whether this included the power to build such roads or was simply the power to designate existing roads for this purpose, and whether the designated roads would be limited to postal use or not.
The 20th century Interstate Highway System is financed primarily through gas taxes and tolls.
There was much canal building in the first half of the 19th century. I limit myself here to four from the 19th century and one from the 20th.
• George Washington had a vision of uniting the Ohio country to the Eastern Seaboard. When independence came, he felt the need for this even more acutely. His political interest was to deter western settlers from creating ties to Great Britain to the north or Spain to the south. His business interest consisted of 58,000 acres of land he owned in Pennsylvania and what is now West Virginia. Washington needed the cooperation of Maryland and Virginia. The states agreed to facilitate interstate commerce in the 1785 Mount Vernon Compact. (The negotiation of this interstate compact led to additional meetings, culminating in the Constitutional Convention and the Constitution’s Commerce Clause.) The two states authorized the Potowmack Canal Company and purchased one-fifth of the company’s stock. The remaining 80% was owned by the private sector. Washington became the company’s president. The canal started operations in 1801 (two years after Washington’s death) and ceased operations in 1828.
• The Erie Canal, stretching 363 miles from Albany to Buffalo, opened in 1825. President Monroe had vetoed federal funding for this “internal improvement” because he believed it was unconstitutional. The State of New York funded the $7 million upfront with reimbursement through user fees (tolls).
• The 308-mile long Ohio and Erie Canal was built in segments starting in 1825 and by 1834 extended from Portsmouth on the Ohio River to Cleveland on Lake Erie. The cost was $41 million, including $25 million in interest, fronted by the state. The state was reimbursed by tolls, leases of waterpower and the rental of canal land.
• Turning to President Obama’s adopted home state, the 96-mile Illinois and Michigan Canal was started in 1836, delayed by the Panic of 1837, and completed in 1848 at a cost of $6 million. The money came from the state which borrowed from banks and financiers and a grant of 284,000 acres of federal land. The state loan was paid off by 1871.
• The St. Lawrence Seaway opened in 1959. It was preceded by canals unable to accommodate oceangoing ships. After Canada signaled it was prepared to build the Seaway on its own, the United States contributed $134 million toward its $470 million cost. Starting in 1978 the operational costs were fully funded by tolls.
Railroads initially competed with canals and then supplanted them. I list four.
• The railroad that comes immediately to the public mind (as it has to the mind of Vice President Biden) is the nearly 1800-mile long Transcontinental Railroad between Omaha and Sacramento completed between 1863 and 1869 at a cost of $50 million. It was heavily federally subsidized – but that fact is not evidence in favor of using federal monies to build infrastructure because the federal subsidy became a federal scandal of huge proportions, occasioned by the padding of costs by subcontractor Credit Mobilier.
• The Panama Railroad is an instance where a railroad preceded a canal rather than the other way around. The 47 miles of track were laid across the Isthmus of Panama. It was completed in 1855, fifty years before the later Panama Canal. The cost of $8 million was borne by private financiers.
• The Chicago and Rock Island company was the first to open a railway between Chicago and the Mississippi River, in 1854. I digress to say: To promote the railway, the owners invited, at the owners’ expense, people from the East -- newspaper editors, current and former government officials, authors, and their families -- to travel to Chicago, take the one-day train to Rock Island, and then travel six days by steamboat to and from St. Paul in June of that year.
Over 1200 people, almost all of them having never seen the interior of the country, accepted the invitation. There were two 9-car trains and seven steamboats. Plenty of food. A band on each steamboat. (See the reports in the New York Times by “Excelsior”: June 8, 9, 12, 14, and 17, 1854; and New York Times, July 12, 1854; Report of Charles F. Babcock of the New Haven Palladium, excerpted in “Rails West: The Rock Island Excursion of 1854,” Minnesota History, Winter 1954 (centennial), pp. 133-143, William J. Peterson, Steamboating on the Upper Mississippi 271-86 (rev. ed. 1968),
• The Baltimore and Ohio opened its first segment in 1830 and reached Wheeling on the Ohio River in 1852. Nearly every citizen of Baltimore owned shares in the company, founded in 1827. Twenty thousand people paid $5 million for stock.
There is a relationship between the B&O, one of the earliest railways, and the first telegraph which set precedent for later telephone lines, microwave towers, and fiber optic cables. Congress provided seed money, $30,000, to Samuel Morse and his associates for an experimental 38-mile telegraph line between Washington, D.C., and Baltimore with the permission of B&O to use its right-of-way – in return for free usage by B&O of the telegraph line. The telegraph line opened in 1844. Following its success, the Morse and his associates used private monies to expand the line to Philadelphia and New York, and additional private companies formed throughout the country. Typically, railroad rights-of-way were used.
The first transatlantic telegraph cable was conceived and laid by Cyrus West and the investors in the Atlantic Telegraph Company. West obtained some financial aid from both the British and American governments. On August 16, 1858 the first message sent across the Atlantic without using a ship was, “Glory to God in the highest; on earth, peace and good will toward men.” After a faster cable was laid in 1866, Congress awarded Field a gold medal in 1868.
I list three bridges.
• Chain Bridge crosses the Potomac River a few miles upstream of Georgetown in Washington, D.C. The first bridge in this location was built by the Georgetown Bridge Company in 1797. Cattle crossings were too heavy and the bridge had to be replaced in 1804. That bridge was destroyed shortly thereafter by floods and the bridge was rebuilt in 1808. The 1808 bridge used chains and that is how the bridge got its current name. The bridge was rebuilt in part in 1810, 1840, 1852, 1874, 1927 and 1939. Private owners built the bridge and obtained tolls until Congress took over the bridge in 1833.
• Putting the joke aside about selling the Brooklyn Bridge, who paid for it to be built? Initially, it was a private company to which New York and Brooklyn contributed funds but, after substantial construction had been completed, the citizenry objected to having a private company in command of so much public money. The private interests were then reimbursed and terminated. The bridge opened in 1883 at a cost of $15.5 million. It was a private citizen who demonstrated the safety of the bridge by parading his 21 elephants across. The man’s name was P.T. Barnum.
• On the other side of the country, the California legislature had created a district for the design, building, and financing of the San Francisco Golden Gate Bridge in 1927. Due to the Crash of ’29, construction funds were not able to be obtained – until a single bank, the predecessor to the Bank of America, purchased $6 million of the state bonds in 1932. The bridge was completed in 1937. In 1971, the construction bonds were retired; they had been paid off by tolls -- $35 million in principal and $39 million in interest.
Since the President cited in Roanoke the Internet as an example of government-provided infrastructure, we can rely on L. Gordon Crovitz’ article in the July 22 issue of the Wall Street Journal to rebut the President. It was primarily the work of Xerox. http://online.wsj.com/article/SB10000872396390444464304577539063008406518.html
This short overview did not address private institutions of philanthropy, such as the founding of 67 institutions by Catholic Mother Frances Cabrini between 1889 and her death in 1917, or Danny Thomas’ non-denominational St. Jude Children’s Research Hospital in Memphis, or Andrew Carnegie’s 3,000 public libraries. It is not our place here to explore the impact of federal funding on such existing institutions or the creation of new ones. Suffice it to say that in Democracy in America (2d vol. 1840), Alexis de Tocqueville described the American proclivity to establish nonprofit associations and how that contrasted then and even today with the experience of government monopoly in France.
In this country, there is increasing private support, relative to government support, of governmental institutions and facilities. I provide four examples:
• Public land grant universities were initially funded by sales of federal lands. State support for these universities is declining. For example, as mentioned in the reports this summer of the dismissal and rehiring of the president of the University of Virginia, the Virginia state government now provides only 8% of the university’s annual operating costs. The rest comes from private sources.
• The American Museum of Natural History, part of the Smithsonian Institution, garnered some $300 million in private donations over the past ten years.
• In 2009, the City of Chicago leased its Skyway Bridge for 99 years for $1.83 billion to a joint venture consisting of Australian and Spanish companies.
• The National Council for Public-Private Partnerships was founded in 1985. http://www.ncppp.org/
In conclusion, President Obama, Vice President Biden, and senatorial candidate Warren are simply wrong in their argument that the success of American businesses throughout our history has been dependent on government initiative and funding.
Spero columnist James M. Thunder is an attorney who works in the Washington DC area.