Holy Roman Empire - Chapter 138

Chapter 138: Chapter 25, Dividing the Fruit

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Translator: 549690339

Anything is easy to talk about but hard to do, and Franz would not overlook the limitations of productivity. The age of railway construction technology had gradually matured, yet the efficiency of construction remained low.

Twenty years to build 38,000 kilometers of railway, averaging 1,900 kilometers per year, was undoubtedly a challenging endeavor in the mid-19th century.

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Funding was also an issue, with twenty million shields to construct 1,900 kilometers of railway, the average budget was just over ten thousand shields per kilometer, which might barely suffice for construction in plain areas, assuming labor was essentially free. (This calculation only took into account engineering costs and did not consider compensation for demolition or geological conditions.)

In reality, the Austrian Empire was not a country of plains, and complex terrain was not uncommon, which severely constrained railway construction.

These natural environmental limitations could be overcome; at worst, it meant taking a detour, as it was impossible for railway construction in Austria during that era to cut through several hundred meters long, let alone several kilometers long, tunnels.

When faced with special terrain, whether detouring or tackling challenges head-on, it meant a significant increase in costs.

Ultimately, how much money would have to be spent was a question no one could answer; perhaps, after field surveys were completed, engineers could give a preliminary budget.

The government’s fiscal income was limited, and it could not be entirely invested in railway construction. In Franz’s view, the annual railway construction costs should be kept within five percent of the fiscal income.

The insufficient amount had to be supplemented by private capital; put simply, it was necessary to find a way to get the Nobility to pay for the construction of the railways.

This was a particular national condition of Austria; although the capitalist economy had developed, most of the wealth in society was still in the hands of the Nobility.

Of course, the Austrian Central Government also held a large amount of wealth now, mainly in the form of land, forests, real estate, and state-owned enterprises. However, the cash procured from confiscation was almost spent by this time, leaving less than 100 million shields.

Real estate was being gradually sold off, the income from land was mainly from renting to farmers, who paid rent and redemption fees, which could provide the government with an income of 150 million shields each year for the next few decades.

This money was not all owned by the government; compensation payments to the Nobility for land were necessary, and Franz had a reputation to maintain; this money had to be paid.

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Even if it was spread over twenty years or even forty years, the money owed to them had to be paid back.

There was no other choice; the Nobility were too cooperative, and the Austrian Government could not find an excuse to default on the debt.

Considering the influence of relationships and to prevent national unrest, the Austrian Government now had to pay compensation of 100 million shields each year.

This was determined by the national condition; a government dominated by the Nobility class naturally had to consider the interests of this interest group. Franz was still clear about what could be done and what could not be done.

Such a large sum of money entering the pockets of the Nobility, if not used for investment, was clearly a waste. Moreover, with no future compensation once the payments were finished, there would be nothing left.

As a good Emperor, he naturally had to consider their future livelihoods. Investment in other projects was very risky; one misstep could mean losing it all.

Investing in railways was much safer; as soon as they opened for traffic, wasn’t that all gold running on top?

In the Cabinet meeting, Franz hesitated and asked, “What do you think is more suitable for us? Issuing railway bonds, forming a railway company to sell shares, or simply authorizing capitalists a particular route, letting them build the railway themselves?”

Finance Minister Karl hurriedly said, “Your Majesty, issuing railway bonds is not advisable; railway investment is a long-term investment which will see no return for several years.

Considering the practical situation, many railway lines might even operate at a loss for over a decade. For such a long period, a huge amount of debt would need to be borne by the government, which could easily drag down our finances.

Besides, holding so many railways entirely in our hands and operating them by the government would mean too high a management cost. It’s better to hand it over to enterprises to manage, and we can just collect taxes.”

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Is investing in railways profitable?

There’s no doubt about it.

However, the precondition was to invest in railways in bustling commercial regions; the Austrian Railway network clearly took into account not just economic but also political and military factors.

Once this railway network was completed, all the major cities in Austria would be connected, even the most remote Dalmatia Province was planned to have a railway.

This implied that the operation of many sections of the railway would be loss-making. Although the territory of Austria was not vast and its natural conditions were superior, with no excessively remote areas, as long as the economy developed, the prospects for these railways were considerable. (About 698,700 square kilometers)

The government could be responsible for the construction of railways to ensure quality, but letting the government run the railways was unacceptable.

In terms of cost-saving, enterprises certainly performed better than government agencies, and private enterprises even more so than state-owned ones.

There was no helping it; Austria had the “Labor Protection Law,” and capitalists did everything possible to evade it, trying to minimize expenses, but no one in the government dared not to comply.

“Your Majesty, issuing company stocks is not a big issue, but according to Austria’s ‘Securities Law,’ stocks cannot be listed and raised before the railway construction has started.

We still need to advance the initial funds, or we could use land as shares and find some social shareholders to invest, then go public to raise funds after the work has started?” Archduke Louis suggested.

This was about sharing the profits. Although Austria was conservative, making money from railway investments was no secret. Of the few railway sections already built domestically, no one was heard to have made a loss.

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In such a scenario, after the Austrian Government treated the railways as a matter of national policy, even the conservative Nobility were tempted.

After all, the risks associated with railways were tangible. As long as a good route was chosen, was there any fear of not making money?

“That’s acceptable, but we need to impose restrictions on investment ratios. The total contribution of all social shareholders must not be less than forty-five percent of the railway construction funds,” Franz thought for a moment and said.

Franz did not object to the Nobility participating in making money; initially, he wanted to contribute financially, provided that genuine gold and silver were put forth. Attempting to make a fortune without investment was not allowed.

With the advent of joint-stock companies, it became more difficult for capitalists to enter the fray. Franz only needed someone to finance the railway construction; he did not care who it was.

Ultimately, the result of the deliberations was that the government would form five railway operating companies, each responsible for the investment and construction of five different railway lines.

Undoubtedly, this was just a pilot test. If it succeeded, the approach would continue to be promoted. If it failed, they would switch to a different strategy.

The investment and construction could be left to private capital, but the railway design work must still be the responsibility of the Railway Department. They had to construct according to the designs and accept the supervision of the Railway Department.

These five railway operating companies only shared part of the railway investment, and the selected sections were mostly those that were easy to build and could profit in a short time.

Officially, this was to allow those who invested first to make money, then encourage more people to join the railway construction, and accelerate Austria’s railway construction pace. In reality, everyone understood.

Franz did not have an ethical fixation. If using the benefits of railways to attract interest groups and obtain better progress for the plan involved a share for the Royal family, he naturally would not refuse.

Profitable businesses attracted fierce competition, while loss-making deals sparked no interest. If nobody wanted to undertake them, the government had to step in.

Commercial railways could be built by the private sector, with the government only owning a certain share. For railways with political and military significance, the Railway Department had to take charge themselves.

Franz, caring about appearances, did not get personally involved.

No one would probably believe this claim. The truth was that he was out of money; after all, mining tycoons made more than the so-called ‘Iron boss,’ but the Habsburg Family had investments.

Anyway, these railway companies would become publicly-listed entities. As long as Franz was willing, he could easily set a trap for them. Once a stock market crash occurred, it would be freezing cold, and what remained was buy, buy, buy.