…in the mid-Atlantic and New England states between 1800 and 1830, turnpike companies accounted for 27 percent of all business incorporations.
That’s from Turnpikes and Toll Roads in Nineteenth-Century America, by Daniel B. Klein, Santa Clara University and John Majewski, University of California Santa Barbara. A long entry in EH.net, an encyclopedia of economic history, it unpacks a remarkable but mostly-forgotten stage of business growth in North America. In reading it I wonder what relevance it might have to the current problems regarding the financing, deployment and running of Internet infrastructure, especially for rural areas that are outside the geographic scope of telephone and cable company ambitions. Take this paragraph, for example:
For Americans looking for better connections to markets, the poor state of the road system was a major problem. In 1790, a viable steamboat had not yet been built, canal construction was hard to finance and limited in scope, and the first American railroad would not be completed for another forty years. Better transportation meant, above all, better highways. State and local governments, however, had small bureaucracies and limited budgets which prevented a substantial public sector response. Turnpikes, in essence, were organizational innovations borne out of necessity – “the states admitted that they were unequal to the task and enlisted the aid of private enterprise” (Durrenberger 1931, 37).
The operative phrase is in the first sentence: better connections to markets. These were markets of the literal sort: places where people gathered to carry out business and other social activities. Most of the civilized world was country then. The most common business was farming. As farming spread farther from cities, the largest of which were ports with harbors or astride navigable inland waters, means had to be found to finance the building and operating of roads. Another two paragraphs:
Throughout the nineteenth-century, the United States was notoriously “land-rich” and “capital poor.” The viability of turnpikes shows how Americans devised institutions – in this case, toll-collecting corporations – that allowed them to invest precious capital in important public projects. What’s more, turnpikes paid little in direct dividends and stock appreciation, yet still attracted investment. Investors, of course, cared for long-term economic development, but that does not account for how turnpike organizers overcame the important public goods problem of buying turnpike stock. Esteem, social pressure, and other non-economic motivations influenced local residents to make investments that they knew would be unprofitable (at least in a direct sense) but would nevertheless help the entire community. On the other hand, the turnpike companies enjoyed the organizational clarity of stock ownership and residual returns. All companies faced the possibility of pressure from investors, who might have wanted to salvage something of their investment. Residual claimancy may have enhanced the viability of many projects, including communitarian projects undertaken primarily for use and esteem.
The combining of these two ingredients – the appeal of use and esteem, and the incentives and proprietary clarity of residual returns – is today severely undermined by the modern legal bifurcation of private initiative into “not-for-profit” and “for-profit” concerns. Not-for-profit corporations can appeal to use and esteem but cannot organize themselves to earn residual returns. For-profit corporations organize themselves for residual returns but cannot very well appeal to use and esteem.
The Internet is to commerce today what the oceans were two centuries ago: essential means for connecting between distant places and moving goods. While physical goods must still move by physical means, digital goods and the digital communications surrounding them move via the Internet, which connects over a variety of wired (copper, fiber) and wireless paths. Every town and district with absent or small data transport capacities today faces the same kinds of choices that were met by the toll roads two hundred years ago.
In the long run toll roads proved a temporary solution to a permanent problem that could be solved other ways. But I wonder what we still might learn from them, at least for regions where the problems are similar, and the solutions likely to be just as temporary.