Transport in developing countries without the state

By Patrick Crozier | 24 May 2005

Can developing countries build good transport infrastructure without huge government involvement, which is liable to go wrong because of high levels of corruption?

We are so used to treating transport as a public good, but I can think of a developing country that did manage to build itself an excellent transport infrastructure without recourse to state ownership, state financing or much state regulation. That country was Britain. The Britain of the 1820s.

By today's standards, the Britain of the 1820s was a developing country. Many were close to starvation, child mortality was high, there was little clean water and disease was rampant. And yet it managed to build itself a superb railway system, a system that was pretty much national by 1850 and which continued to improve and expand up until the First World War.

How did it do it? Through joint stock companies pursuing profit. Companies such as the London and Manchester, the Great Western and the Midland, formed, issued shares, accumulated capital and with that money built railways. They then charged to move freight and passengers and with the profits (if there were any) reimbursed the shareholders.

In other words self-interest was harnessed to provide something from which all benefited.

Self-interest is everywhere but excellent transport infrastructure is not. The British system relied on companies and profit. But they too relied an underpinning. That underpinning was the right to own property: the knowledge that you could keep your property and manage it as you liked. That is the certainty that Britain's railways companies had and because they had that certainty they could plan ahead.

It would be wrong for me to claim that the state was not involved at all. Almost every single railway in Britain and all the major ones required an Act of Parliament. These Acts established joint stock companies (there was no other way of doing it until much later) and granted the companies the compulsory purchase powers they (appear to have) needed to acquire the necessary land. The state also stuck its oar in in the form of mandated low-cost transport (known as Parliamentary trains) and safety regulation. Fortunately, this interference was fairly minor and in the case of safety regulation tended to follow existing practice rather than lead it.

Property rights are the key. If you have them anything is possible but if you don't things get very difficult. Last year I read about the Tangle Tollroad in Jamaica. After Hurricane Ivan swept away the existing road, the government (as governments do) hummed and haa-ed and did nothing. A bunch of local entrepreneurs built a road on private land and started charging a toll. But reading the story you can almost feel jealous bureaucratic vultures circling looking for some opportunity to close the road or force it into bankruptcy. Such infringements of property rights are probably going on in a million places in a hundred developing countries. With them risk taking becomes more hazardous than ever and the result is that a million things that could so easily get done don't.