Holy Roman Empire

Chapter 138: Sharing the Fruits

It was easier said than done. Franz was well aware of the limitations of productivity. In this era, although railway construction techniques had advanced, efficiency remained a challenge.

Constructing thirty-eight thousand kilometers of railway within twenty years meant an average of 1,900 kilometers built annually. In this time period, such a feat was undoubtedly a formidable task.

Funding was also a concern. Allocating 20 million florins to construct 1,900 kilometers of railway translated to just over 10,000 florins per kilometer on average. This budget might barely suffice for construction in flat areas, assuming labor costs were negligible. But it didn’t take into account compensation for demolitions or considerations of geological conditions.

In reality, the Austrian Empire was far from being a land of plains. Complex terrains were prevalent, adding further challenges to railway construction.

These natural environmental limitations could be partially mitigated by taking longer routes. After all, in this era, it was impossible to construct tunnels several kilometers or even tens of kilometers long for Austrian railway projects.

Dealing with challenging terrains, whether by circumventing them or tackling them directly, both meant a significant increase in costs.

The final cost remained uncertain. Perhaps, after completing on-site surveys, engineers could provide an initial budget estimate.

The government’s financial resources were limited, and they couldn’t allocate all their funds to railway construction. In Franz’s opinion, the annual expenses for railway construction should ideally be kept within 5% of the government’s revenue.

The deficit could be addressed by attracting private capital, essentially encouraging the nobility to invest in railway construction.

This aspect of Austria’s national circumstances was unique. While capitalist economics had begun to develop, a significant portion of the country’s wealth still resided in the hands of the nobility.

Of course, the central government of Austria now possessed a substantial amount of wealth in the form of land, forests, real estate, and state-owned enterprises. However, much of this wealth was non-liquid. The funds acquired from confiscations had largely been spent, leaving the treasury with less than one hundred million florins.

Real estate was gradually being sold off, and a significant portion of the income from land came from leasing to farmers, rent collection, and redemption money. It was anticipated that this arrangement would provide the government with an annual income of one hundred and fifty million florins over the next several decades.

Not all of this money would go directly to the government; a portion of it would have to be allocated as land compensation to the nobility. Franz had a reputation to uphold, and these payments have to be made, no matter how long it takes.

Even if it has to be stretched out over twenty or even forty years, these obligations have to be honored.

Unfortunately, the Austrian nobility were quite cooperative, and the government couldn’t find excuses to default on these payments.

Due to these factors and the influence of personal connections, the Austrian government was obliged to allocate one hundred million florins in compensation each year.

It was a reality dictated by the country’s political landscape, where the nobility played a significant role in the government, and their interests had to be considered. Franz understood the limitations of his actions in such a situation.

Given the substantial amount of money flowing into the nobility’s coffers, it would be a waste not to consider investment opportunities. Furthermore, hoarding these funds would be unwise, as the compensation payments were not perpetual; once paid, they were gone.

As a responsible emperor, Franz also had to contemplate the nobility’s future financial security. Investing in various projects carried inherent risks, and an ill-advised decision could lead to catastrophic losses.

On the contrary, investing in railways appeared considerably safer. As long as there’s a train running on it, wouldn’t it be profitable?

During a cabinet meeting, Franz paused thoughtfully as he posed a question, “What do you all believe would be the better course of action: issuing railway bonds, establishing railway companies to sell shares, or simply granting authorization to capitalists for specific railway lines, allowing them to construct the railways themselves? Which option do you deem more suitable for our circumstances?”

Finance Minister Karl responded promptly, “Your Majesty, issuing railway bonds would not be advisable. Railway investments entail a long-term commitment, and for several years, there may be little to no returns.

In fact, considering the practical circumstances, many railway lines might even operate at a loss for a decade or more. Over such an extended period, the substantial debt burden would weigh heavily on the government, potentially straining our finances.”

He continued, “Furthermore, if all these railways were directly controlled by the government, it would result in exorbitant management costs. It would be more prudent to entrust their management to private enterprises, allowing us to concentrate on tax collection.”

Is investing in railways profitable?

Absolutely.

However, it comes with a caveat – investing in railways that connect bustling commercial areas is the key. The Austrian railway network, in its grand design, considers not only economic factors but also political and military considerations.

Once this expansive railway network is completed, it will interconnect all major cities in Austria, even reaching the remote province of Dalmatia, which is slated to have its own railway.

This means that some of these railway sections may initially operate at a loss. Nonetheless, Austria’s land area is not extensive, and its natural conditions are relatively favorable, without extremely remote areas. With the burgeoning development of the economy, the prospects for these railways are indeed promising. (Austria encompasses a land area of 698,700 square kilometers.)

While the government can take responsibility for building the railways to ensure quality, having the government manage the railways might not be the most efficient approach.

Private enterprises often excel in keeping costs at a minimum compared to government agencies, and private companies tend to outperform state-owned enterprises.

However, Austria’s labor protection laws are in place, and capitalists, while seeking ways to minimize expenses, must adhere to strict government regulations.

“Your Majesty, issuing company stocks should not pose a major issue. Nevertheless, it’s important to note that according to Austrian securities laws, we cannot go public and raise capital until construction on the railways has actually commenced.

Therefore, we’ll still need to provide the initial funding. One approach could involve utilizing land as part of our investment, seeking contributions from social shareholders, and subsequently initiating the process of going public for fundraising once construction is underway,” suggested Archduke Louis.

This is indeed an opportunity to share the fruits. While Austria is often seen as conservative, it’s no secret that investing in railways can be profitable. There are a few railway segments in China already, and as far anyone knows, none of them are operating at a loss.

Given the Austrian government’s commitment to prioritizing railways, even conservative aristocrats might be enticed.

After all, railways are a different kind of industry; the risks are visible. With a well-chosen route, making money seems almost inevitable.

Agreed, but there should be restrictions on the investment ratio. The total amount contributed by all social shareholders should not be less than forty-five percent of the railway construction funds,” proposed Franz after giving it some thought.

Franz didn’t mind the nobles getting involved and making money; in fact, he wanted them to contribute. However, the condition was that they must provide real money, not just empty-handed promises.

The introduction of joint-stock companies posed a challenge for capitalists looking to enter the railway sector. Franz’s primary concern was securing the funds needed to build the railways, regardless of their source.

Ultimately, it was decided that the government would establish five railway operating companies, with each company responsible for the investment and construction of one of the five railway lines.

This decision was seen as a pilot program. If successful, it would expand further; if it failed, alternative approaches would be explored.

While private capital could be involved in investment and construction, railway design and planning would remain under the jurisdiction of the Ministry of Railways. Construction had to adhere to the approved plans and be subject to the Ministry of Railways’ supervision.

These five railway operating companies were only responsible for a portion of the railway investment, and they predominantly selected routes that were easy to construct and could generate profits quickly.

Officially, the goal was to allow early investors to profit, thereby encouraging more individuals to participate in railway construction and accelerating Austria’s railway development. In practice, everyone understood the underlying motivations.

Franz wasn’t overly concerned about morals. He didn’t reject the idea of using the benefits of the railway to gain support from interest groups and facilitate smoother project progress. Of course, the royal family also had its stake in this endeavor.

When it came to profitable businesses, people clamored to get involved, but when it came to ventures with potential losses, no one was interested. If no one else was willing to take on the risk, then the government would have to shoulder the burden.

Commercial railways would be constructed by private entities, with the government holding a certain share. Railways with political or military significance would be handled by the Ministry of Railways itself.

Franz was mindful of appearances, so he refrained from direct involvement in these matters.

In reality, the government was short on funds. After all, mine owners made more money than rail tycoons, but the House of Habsburg did have some investments.

In any case, these railway companies would eventually go public. If they encountered financial difficulties, Franz could seize the opportunity to invest when their stock prices plummeted.