Remember the lesson of steamship subsidies


Imagine some great reformer back in 1650 had decided we needed to replace sailing craft, because it took so many men to run a sailing ship that they had to live crammed together in wall-to-wall hammocks, with little hygiene and even less privacy, under a discipline little better than slavery.

Imagine a powerful government at the time -- in London, presumably -- had mandated that progressively 3 percent, and then 5 percent, and then 8 and then 12 percent of all goods had to be shipped in craft using "alternative, non-sail technology."

Hundreds of thousands of pounds in subsidies (billions of dollars, in today's reckoning) would then have flowed to people attempting to make commercially viable ships powered by enormous rubber bands, or towed by harnessed whales and porpoises, or any other fantastic thing they could persuade these landlocked, technological know-nothings to finance.

Eventually, in the first years of the 19th century, Robert Fulton developed the first commercially successful steamship -- not because government dictated it should happen (though Fulton did later seek state monopolies), but because of clever men trying to invent things that could make them money by solving existing problems, far away from the sea.

By the early 19th century, our central government in Washington had indeed grown rich and arrogant enough to believe it could help advance steamship transportation by subsidizing the efforts of one Edward Collins.

"Collins, a political entrepreneur ... said that America needed subsidized steamships to compete with England, to create jobs, and to provide a military fleet in case of war," historian Burton Folsom of Hillsdale College recounts at www.thefreemanonline.org/columns/entrepreneurs-and-the-state/. "If the government would give him $3 million down and $385,000 a year, he would build five ships, deliver mail and passengers, and outrace the (British) Cunarders" from New York to England.

Congress gave Collins the money in 1847, "but he built four enormous ships (not five smaller ships as he had promised)," Folsom reports.

"Collins stressed luxury, not economy, and his ships used almost twice the coal of the Canard Line. He often beat the Cunarders across the ocean by one day, but his costs were high and his economic benefits were nil."

With government aid, Collins had no incentive to reduce costs. "He preferred to compete in the world of politics for more federal aid than in the world of business against price-cutting rivals. In 1852 he went to Washington and lavishly entertained President Fillmore, his Cabinet, and influential congressmen. Collins artfully lobbied Congress for an increase to $858,000 a year."

It took Cornelius Vanderbilt, the New York shipping genius (now dismissed in our government schools as a greedy robber baron, of course), to challenge this system. In 1855, Vanderbilt offered to deliver the mail for less than half what Collins was getting. Congress balked -- it was pledged to Collins -- so Vanderbilt decided to challenge Collins even without a subsidy.

Vanderbilt's strategy against Collins was to cut the standard first-class fare from $200 to $80. He also introduced a third-class fare in steerage, at $75.

"All this was too much for Collins," Folsom reports. "When he tried to counter with more speed, he crashed two of his four ships, killing almost 500 passengers. In desperation he spent one million dollars of government money building a gigantic replacement, but he built it so poorly that it could make only two trips and had to be sold at more than a $900,000 loss."

Outraged, Sen. Robert M.T. Hunter of Virginia said, "The whole system was wrong. ... It ought to have been left, like any other trade, to competition." Sen. John B. Thompson of Kentucky concurred: "Give neither this line, nor any other line, a subsidy. ... Let the Collins Line die ... the whole thing wiped out, and a new beginning."

Congress voted for this "new beginning" in 1858: It revoked Collins' aid and left him to compete with Vanderbilt on an equal basis. Collins quickly went bankrupt.

In the end, the mail subsidies had actually stifled progress. It was the unsubsidized lines -- Vanderbilt for the Americans, William Inman for the Brits -- that replaced wooden hulls and paddle wheels with steel construction and screw propellers, while the subsidized lines (Collins in America, Cunard in England) "cautiously stuck with traditional technology," using "their monopolies to stifle innovation and delay technological changes."

And now the geniuses in Washington, few of whom have ever operated so much as a root beer stand, believe they can again create jobs and lead us to new peaks of prosperity and innovation, all by using the heavy boot of federal regulatory repression to stifle the booming, cost-effective coal, oil and natural gas industries (No permits for you guys! You're toxic!), while instead raising up "green energy" technologies in which no private entrepreneur would knowingly invest so much as an unsubsidized dime.

The bankruptcies from these corrupt inside deals have already begun. The larger political and financial collapse likely to cascade from such unmitigated hubris?

Coming soon, unfortunately.

Vin Suprynowicz is assistant editorial page editor of the Review-Journal, and author of "The Black Arrow" and "Send in the Waco Killers." See www.vinsuprynowicz.com.

 

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