Cronyism and Its First Appearance in USA History
Introduction
Regulations and subsidies are the nation’s governmental body’s way of providing value back to the national populace. On a high podium over the interworking’s of the economy and the movements of geopolitics, a national government has a prime view to provide help. With all these factors piled up to the government’s position as a helpful hand, historically it falls short of this perfect image. According to Dr. Patrick Newman, United States governmental regulations and subsidies do not perform in the best interest of the population. It usually functions toward the benefit of a selective few at the expense of the populace. A shorter term for these actions taken by the government is cronyism. In his presentation over his book, Cronyism: Rise of the Corporate Estate, Dr. Newman provides a chronological showcase of the Transcontinental Railroad, and how it was America’s first by crony business.
A Railroad with Cronyism
To set the stage, Dr. Newman explains the history before the actual building of the Transcontinental Railroad. It was in 1860, the election of Abraham Lincoln and the seceding of the Southern states. With the splitting of the North and the South, there barriers of where to build the railroad had collapsed. Because Congress was now only full of Northern congressmen, the railroad’s location was chosen to be primarily in the south. Congress also decided to have the railroad run through Southern California to keep it apart of the Union. With this decided, four men arose to man the building of the Railroad: Leland Stanford, Collis P. Huntington, Mark Hopkins, and Charles Crocker. Along with these men came the alleged mentioned cronyism. For example, Leland Stanford was the governor of California, but he was also elected to run the Central Pacific Railroad. He would be incentivized to have the track run through majority of California to raise the price of the land. Even Abraham Lincoln advocated for the railroad to run through Nebraska since he owned land in Nebraska. The big question is on how these men gained a profit from the railroad. In a normal railroad company, the profits would be gained through operating the railroad. However, these men sought to utilize the system of government subsidies, so they focused on gaining a profit through the building of the railroad. The first thing they did was to set up construction companies. With these companies in place, they would then raise the price for construction work. Since these men were also in charge of building the railroad, they would enlist their own companies as the builders, so they were basically paying themselves to build the railroad. However, the funds did not come from their own pocket, it came from the taxpayers’. For every mile built on the plains, the railroads would receive a subsidy of 16 thousand dollars. For mountains, they would get a subsidy of 48 thousand dollars, and for anything between, they would get 32 thousand dollars. Alongside Oaks Ames and their construction companies, these men had the railroad snake across the countryside; to capitalize the amount of money the railroad would get to pay them. This also meant that the construction companies did not have to focus on quality, since the government was covering the tab.
A Railroad without Cronyism
As Dr. Newman showcased, the Transcontinental Railroad was not efficiently constructed and poorly built. To keep Congress quiet, these men would give congressmen bribes of the construction company’s stock. With a bribe of stock, the congressmen would now want the value of the company to rise and continue supporting their activities. Under all this cronyism, the actual railroad companies were failing. Forced to pay the prices of the construction companies, the railroad companies went vastly into debt, including the costs of rebuilding the efficient parts of the railroad. The Transcontinental Railroad was a failure. In contrast, the Great Northern Railroad succeeded. Started by James J. Hill, the railroad was to run through Washington. Hill saw his chance to build this railroad during the failings of the Transcontinental Railroad. The government was offering a land grant for cheap due to the failure, so Hill bought it. Since all the funds came out of his pocket, the railroad never snaked across the countryside. He also made sure to build well, buying the best supplies and railing. By doing this, Hill would not have to bear the costs of his railroad breaking down. To gain funds during the construction and after, Hill encouraged farmers to purchase land near the railroad. This way they could export their crops using his railroad. James J. Hill’s railroad proved to be the most successful railroad company in America at that time. The reason his railroad was so successful was because he had to bear responsibility for the costs. If he failed to produce a good railroad, he would be the only one burdened by that failure. With the Transcontinental Railroad, the burden of cost did not lie on the construction companies, so waste was able to accumulate, and profit could be made on that waste. Hill had to be efficient, or he would suffer loss. He was motivated by his own failure.