Railways: operation and economic impact

Railway traffic, both passenger and freight grew steadily during this period. Passenger numbers rose from 24.5 million in 1842, to 72.9 m in 1850 to 507 m by 1875, freight tonnage from 5.4 million in 1842 to 38 million in 1850 to 119.6 million in 1875 and total revenue from £4.8 m in 1842 to £61.3 m in 1875. Although some companies created new traffic, the principal aim was to supply improved facilities for existing customers. The trunk-line railways that eventually dominated the industry established themselves as specialist high-tariff businesses. As the industry expanded there were two significant changes in the composition of the business handled:

• There was an increased emphasis on freight from the mid-1840s. In the decade 1835-45, the major companies concentrated on passenger traffic, deriving three quarters of their gross revenue from this source. By 1850 the proportion had fallen below half.
• There was a shift in passenger traffic to third class: in 1845-6 third class passengers made up half of total numbers and produced a fifth of the total revenue; by 1870 the proportions had risen to 65 and 44 per cent respectively.

Railways were slow to exploit their freight-carrying advantages. As late as 1835 locomotive technology was confined to a few lines and not until the early 1840s that locomotives were capable of hauling heavy goods trains. It was only with the company amalgamations of the late 1840s and the improvement of long-distance traffic interchange via the Railway Clearing House that railways were able to challenge canals and so extend their markets. Railways could carry freight in quantity and this was the key to their success.

1. There is general agreement that railways stimulated an overall reduction in transport costs, both by introducing lower rates and by forcing competitors to cut their own charges.
2. However, the extent of the reductions and the effects on markets and commodities are more difficult. In the period 1830-1850 railways under-cut road coaches by possibly 15-20 per cent and canals by a more substantial figure of 30-50 per cent.
3. Retailing was transformed and new traffic was encouraged in perishable goods -- meat, fish, fresh milk and vegetables. The extension of services was accompanied by an improvement in communications at all levels, via the telegraph, postal services and newspapers, that were all highly dependent on rail facilities. Faster and cheaper travel also stimulated the growth of leisure facilities, particularly in the coastal resorts.

The railway reduced the cost and greatly improved the quality and volume of Britain's transport.

Economic growth and railways 1830-1900

Nineteenth century writers had little hesitation in assuming a direct link between the growth of the railway network and the pace of economic change. Historians today are more cautious. How much did railways really contribute to British economic growth between 1830 and 1870? G.R. Hawke Railways and Economic Growth in England and Wales 1840-1870, published in 1970, is the starting-point. He poses the question: 'To what extent did the economy depend on railways in 1865?', or more exactly, what would have been the cost of dispensing with railways and transporting passengers and goods by road and canal? Hawke is concerned with 'social saving theory' and concludes that railway services in 1865 represented a social saving of between 7 and 11 per cent of the net national income of England and Wales. He recognises that social savings were much lower in the earlier years -- about 2.5 per cent in 1850 and 6.5 per cent in 1855.

By 1870 the essential features of the railway industry -- the basic network, organisational structure and traffic patterns -- had been established. But maturity did not mean stagnation. From 1870 to 1914 there was a four-fold increase in passengers and a three-fold increase in freight. Route-mileage increased by 50 per cent, capital by 150 per cent and gross revenue by nearly 200 per cent. Inland transport was essentially rail transport in the late nineteenth century, though this is not to ignore the important role of road transport, and especially road haulage, as a short-distance feeder. There is no doubt that the contribution of railways to the economy was much greater than it had been in the 1860s. But historians have directed attention to the declining profitability of the industry and its relevance to the wider debate on British retardation and weakening competitiveness after 1870. So how were railways performing?

The net rate of return on capital fell steadily from 4.55 per cent in 1870-4 to 3.38 per cent in 1900-4. However, it was not until the 1890s that returns fell below the 4.0 per cent level of the 1860s and there was a recovery from 1901 to 3.6 per cent by 1910-12. We may conclude that after two decades of recovery, 1850-70, the industry's earning power fell back to the level of the early 1860s and that operating margins narrowed significantly.  These developments can be explained by seeing railways as the victims of the increased demand for traffic. Traffic growth occurred largely in those sectors were profits were lowest: third class passengers and small consignments of short-haul bulk freight. The emphasis of the railway companies was on expanding links by constructing branch lines at the expense of operating costs.

There were four distinct periods affecting the working environment and these corresponded broadly with changing price trends:

1. There was a sharp rise in costs in the early 1870s.
2. Revenue and costs per train-mile fell between 1873 and 1890 when the additional costs of an improve quality of service were offset by the falling price of materials, especially coal.
3. In the 1890s, and notably between 1896 and 1901, there was a serious escalation of costs.
4. After 1900 the situation changed again and there was a substantial improvement in operating efficiency; almost all of this occurred in the freight area.

The railways' difficulties were essentially problems of the late 1890s and certainly the period 1896-1901 was a challenging one. Operating costs increased sharply, traffic growth slowed down and the extra burdens of newly raised capital put pressure on profit levels. All this was accompanied by legislation seeking to control two areas of railway economy: charges and labour costs. The Railway Regulation Act 1893, which aimed to restrict excessive working hours, and the Railway and Canal Traffic Act 1894, which established the 1892 rates as new maximum charges, were examples of the many efforts to make the railways conform to public expectations

The degree to which the railway companies were responsible for this situation is a matter of some disagreement. Derek Aldcroft suggests that much of the problem was due to managerial shortcomings and there is evidence that while managers were aware of the need to prune uneconomic services, they frequently yielded to pressure from customers. The results, in the case of uneconomic lines, were economies by squeezing labour and curbing the quality of services. Other historians place emphasis on the more hostile political environment in which railways were places after 1870: governments were prepared to legislate on passenger fares and safety in the 'public interest'.

The Railway and Canal Traffic Act 1873, the Cheap Trains Act 1883 and the legislation of 1888-94 were all part of a significant shift in public opinion. Railways were seen more as public corporations than as profit-making businesses. It as in this environment railways experienced diminishing returns, while producing substantial benefits for society as a whole.

Railways: Construction

The railway in the modern sense was very much an innovation of the late 1820s. The industry was established in the next half-century in a series of promotion 'manias' in the late 1830s, mid-1840s and mid-1860s. By 1870 over 70 per cent of the final route mileage had been constructed. The three striking characteristics of the railway industry were:

1. Novelty. The Liverpool and Manchester railway, opened in September 1830, combined the essential features: specialised track, mechanical traction, and facilities for public traffic and provision for passengers.
2. Size. The scale of this new technology was soon apparent. The capital raised by the companies in the United Kingdom amounted to £630 million by 1875, dwarfing the fixed-capital formation of basic industries such as coal, iron, textiles and steel. Gross revenue, running at £19 million a year in the 1850s, rose to £52 million a year in 1870-75, equal to the output value of the woollen industry and double that of coal. Permanent employment reached 56,000 in 1850 and by 1873 the figure had risen to 275,000 or 3.3 per cent of the male labour force.
3. Concentration. This was also visible at an early stage. The great mania of 1845 -1847 left 61 per cent of the UK railway capital and 75 per cent of gross traffic revenue in the hands of 15 major companies. By 1870 the same number of companies controlled 80 per cent of the capital and 83 per cent of the revenue. The remaining 415 railway companies shared the rest.

Investment

In the period up to 1870 investment was very largely the story of three great 'manias', peaking in 1839-1840, 1847 and 1865-1866. In the late 1830s railway investment consumed nearly 2 per cent of national income but this rose to about 4.5 per cent of gross national product in 1845-9. We should not neglect the continuing importance of railway investment after 1850: over 60 per cent of the capital raised between 1825 and 1875 occurred after 1850. So what role did this play in the growth process?

• While railway promotion was an undoubted influence on general economic activity from the 1830s, its role was to support rather than lead. Decisions to invest in railways tended to concentrate in the upswing of the trade cycle but, because of the timescale involved in promotion and construction, lagged behind. So there is a clear lag between the peaks of economic activity in 1836 and 1845 and peaks of railway investment in 1839-40 and 1847.
• Technological change, commercial viability and parliamentary attitudes were all important in stimulating investment. Gladstone's Act of 1844, which referred to the possibility of a state purchase after 21 years of new companies earning 10 per cent or more, helped encourage over-optimism about the industry's future profitability during the second 'mania'.
• After 1860 investment fluctuations tended to coincide with those of the economy as a whole, with a peak in 1865-6, a trough in 1869 and a further peak in 1874-5.
• Railway investment encouraged radical changes in the structure of the British capital market. The volume of railway business from the mid 1830s was such that the London Stock Exchange not only expanded but shifted its emphasis towards company securities.  Railway investors were protected by limited liability from the start and it is logical to assume that the industry acted as a model for the companies that sprang up in the wake of the 1855-62 legislation.

Construction

Historians have distinguished between the railway as a producer of transportation services and as a construction enterprise. While it is not always easy to isolate the economic effects of railway enterprise, there is no doubt that the construction phase was a major activity in its own right. Before 1850 the employment generated by railway building dwarfed that created by railway operation. Between 1830 and 1870 about 30,000 miles of track were laid to form routes totalling 15.500 miles. The associated demands for men and materials -- unskilled labour and iron products in particular -- was large enough to merit a separate analysis. As far as labour was concerned

1. Between 1831 and 1870 an average of 60,000 men were engaged annually in building railways, or about 1 per cent of the occupied male labour force. This may not appear particularly dramatic but during the short 'mania' the numbers employed were considerable: 172,000 annually between 1845 and 1849 and 106,000 between 1862 and 1866.
2. The construction booms produced sudden surges in demand for labour and especially unskilled labour. The outcome, in the late 1840s, was a substantial boost to effective demand in the economy at a time of depression. Wages paid during this period amounted to £11 million or 2 per cent of GNP. In the mid 1860s constructional wage costs were high once again, averaging £7 million or so between 1862 and 1866.
3. Railway construction also brought demands for professional expertise based on specialist work. Engineering, law, accountancy and surveying all received an important stimulus. Civil engineers increased four fold between 1841 and 1851.
4. Both navvies and specialists were not immune from cutbacks once railway booms subsided. The number of parliamentary agents increased from 27 to 141 between 1841 and 1851 but fell back to 70 by 1861. The navvy workforce dwindled to under 36,000 by 1852 and after the 1860s boom it was probably no more than 33,000 in 1870. The long-term benefits of the attraction of labour to railway building were thus rather limited, especially after 1850. Of more lasting importance was the permanent employment offered by companies open for traffic, which exceeded 100,000 by 1856 and 200,000 by the late 1860s.

There is general agreement that the construction of Britain's railways had its greatest impact on the iron industry. Wrought iron rails were the major product purchased, but there was also a substantial demand for iron in other areas of railway enterprise. It is, however, important not to overestimate the long-term significance of this additional demand:

• Pig iron requirements were of major importance in the 1840s, particularly in terms of home demand, but the same cannot be said of the construction phase as a whole.
• Between 1844 and 1851 about 18 per cent of United Kingdom pig iron output went into railway enterprise. However, after 1852 as iron exports grew steadily, the railway's share of iron output fell back to under 10 per cent. Railways were not essential to the expansion of the iron industry; of more importance were the diffusion of Neilson's hot-blast technique in the 1830s and the surge of export demand [much of it was in fact for railway iron] after 1840.  Steel rails began to replace iron in the 1860s but the substantial shift did not occur until the 1870s.

Railway construction stimulated demand for other products, notably coal, engineering products, timber and building materials. The evidence for linkages is rather thin. In terms of total production, the direct impact of railway on the coal industry was small but as much as 10 per cent of output was used for making iron for railway uses. About 20 per cent of engineering's output went in the form of railway rolling stock in the late 1830s and 1840s. Brick production also received a direct stimulus: 25-30 per cent of the total production went into railways in the 1840s.