Obama's False History of
Public Investment
Entrepreneurs built our roads, rails and canals
far better than government did.
For almost five years now, President Obama has been making the
argument that government "investments" in infrastructure are crucial
to economic recovery. "Now we used to have the best infrastructure in the
world here in America," the president lamented in 2011. "So how can
we now sit back and let China build the best railroads? And let Europe build
the best highways? And have Singapore build a nicer airport?"
In his recent economic speeches in Illinois, Missouri, Florida and
Tennessee, the president again made a pitch for government spending for
transportation and "putting people back to work rebuilding America's
infrastructure." Create the infrastructure, in other words, and the jobs
will come.
History says it doesn't work like that. Henry Ford and dozens of
other auto makers put a car in almost every garage decades before the National
Interstate and Defense Highways Act in 1956. The success of the car created a
demand for roads. The government didn't build highways, and then Ford decided
to create the Model T. Instead, the highways came as a byproduct of the
entrepreneurial genius of Ford and others.
Moreover, the makers of autos, tires and headlights began building
roads privately long before any state or the federal government got involved.
The Lincoln Highway, the first transcontinental highway for cars, pieced
together from new and existing roads in 1913, was conceived and partly built by
entrepreneurs—Henry Joy of Packard Motor Car Co., Frank Seiberling of Goodyear
and Carl Fisher, a maker of headlights and founder of the Indy 500.
Railroads are another example of the infrastructure-follows-entrepreneurship
rule. Before the 1860s, almost all railroads were privately financed and built.
One exception was in Michigan, where the state tried to build two railroads but
lost money doing so, and thus happily sold both to private owners in 1846. When
the federal government decided to do infrastructure in the 1860s, and build the
transcontinental railroads (or "intercontinental railroad," as Mr.
Obama called it in 2011), the laying of track followed the huge and successful
private investments in railroads.
the government built the
transcontinentals, they were politically corrupt and often—especially in the
case of the Union Pacific and the Northern Pacific—went broke. One cause of the
failure: Track was laid ahead of settlements. Mr. Obama wants to do something
similar with high-speed rail. The Great Northern Railroad, privately built by
Canadian immigrant James J. Hill, was the only transcontinental to be
consistently profitable. It was also the only transcontinental to receive no
federal aid. In railroads, then, infrastructure not only followed the major
capital investment, it was done better privately than by government.
Airplanes became a major industry and started carrying passengers
by the early 1920s. Juan Trippe, the head of Pan American World Airways, began
flying passengers overseas by the mid-1930s. During that period, nearly all
airports were privately funded, beginning with the Huffman Prairie Flying
Field, created by the Wright Brothers in Dayton, Ohio, in 1910. St. Louis and Tucson
had privately built airports by 1919. Public airports did not appear in large
numbers until military airfields were converted after World War II.
No matter where you look, similar stories come up. America's
19th-century canal-building mania is now largely forgotten, but it is the
granddaddy of misguided infrastructure-spending tales. Steamboats, first
perfected by Robert Fulton in 1807, chugged along on all major rivers before
states began using funds to build canals and harbors. Congress tried to get the
federal government involved by passing a massive canal and road-building bill
in 1817, but President James Madison vetoed it. New York responded by building
the Erie Canal—a relatively rare success story. Most state-supported canals
lost money, and Pennsylvania in 1857 and Ohio in 1861 finally sold their canal
systems to private owners.
In Ohio, when the canals were privatized, one newspaper editor
wrote: "Everyone who observes must have learned that private enterprise
will execute a work with profit, when a government would sink dollars by the
thousand."
In all of these examples, building infrastructure was never the
engine of growth, but rather a lagging indicator of growth that had already
occurred in the private sector. And when the infrastructure was built, it was
often best done privately, at least until the market grew so large as to demand
a wider public role, as with the need for an interstate-highway system in the
mid 1950s.
There is a lesson here for President Obama: Government
"investment" in infrastructure is often wasteful and tends to support
decaying or stagnant technologies. Let the entrepreneurs decide what
infrastructure the country needs, and most of the time they will build it
themselves.
Mr. Schweikart, a
history professor at the University of Dayton, is the co-author, with Dave
Dougherty, of "A Patriot's History of the Modern World" (Sentinel,
2012). Mr. Folsom, a history professor at Hillsdale College, is the co-author,
with his wife, Anita, of "FDR Goes to War" (Threshold, 2011).
A version of this article appeared August 6, 2013, on page A13
in the U.S. edition of The Wall Street Journal, with the headline: Obama's
False History of Public Investment.
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