The Transcontinental Railroad
Building a railroad across America was a remarkable engineering feat. However, the alliance between corporations and government that built the railroad set a precedent for the wasteful and corrupt mismanagement of taxpayer money that flourishes today.
In 1862, the Pacific Railway Act created two railroad corporations. The Central Pacific (CP) began laying track eastward from Sacramento, California, and the Union Pacific (UP) was to lay track westward from Council Bluffs, Iowa. Eventually the two lines would meet, and this line would connect to the eastern rail networks to become the first transcontinental line.
The railroad companies were given taxpayer-funded government bonds and enormous tracts of land with which to build. The companies soon hired lobbyists to encourage D.C. politicians to keep the subsidies flowing by exchanging stocks for votes. Since taxpayers funded construction, the companies were in no hurry to link their lines; in the first two and a half years of work, the UP line was still only 40 miles outside Omaha, Nebraska.
The companies were paid based on the ruggedness of the terrain, with rougher terrain being worth more. So company executives naturally selected roundabout routes on hills and through mountains, even though such routes were neither efficient nor safe. The cheapest supplies were also used, which virtually guaranteed shoddy workmanship and the need for future repairs.
Since the funds were given and not earned, executives often stole from their own companies for personal gain. Stocks were manipulated, as executives bought struggling eastern rail companies, spread rumors that the transcontinental line would link to these companies, then sold them when their stock rose. This scheme raised an estimated $5 million.
Perhaps the most tragic aspect of building the line concerned the fate of American Indians along the route. To stop Indian attacks on workers, executives hired hunters to slaughter buffalo, thus depriving the Indians of their primary food and clothing source. Indians responded by intensifying their attacks, and executives called on Washington to help. U.S. troops were sent west, and the Plains Indian Wars that ensued led to the near genocide of the American Indian by the end of the 19th century.
The widespread fraud and abuse surrounding the transcontinental line resulted in the greatest scandal of the 19th century. UP executives created a construction company called Credit Mobilier of America, then hired the company to build its portion of the rail line. Since the UP stockholders also owned Credit Mobilier stock, the executives essentially hired themselves to do the work.
The job cost taxpayers $72 million, even though the line only cost $53 million to build. The press exposed the scheme three years later, forcing Congress to investigate. The scandal exposed a massive misuse of taxpayer funds by the corrupt alliance of government and business. However, Credit Mobilier was only the most notorious of many scandals and abuses perpetrated in the construction of this historic railroad.
Celebrations took place throughout the country when the CP and UP linked at Promontory Point in 1869. Despite all the waste and fraud, this was one of the most remarkable engineering feats of the 19th century. In seven years, about 20,000 workers laid 1,775 miles of track, and coast-to-coast travel was reduced from six months to one week.
Despite the celebrations, the transcontinental railroad was not yet complete because its eastern terminus was at Omaha. Trains had to be ferried across to Missouri River until a bridge finally connected Omaha to Council Bluffs, Iowa in 1872.
Less than three years after the ceremony at Promontory Point, the UP declared bankruptcy due to vast inefficiency and waste. The CP ultimately went under as well. The shoddy workmanship on the line led to continuous repairs to bridges, viaducts, tunnels, rails, ties, and beds.
As extraordinary as the transcontinental railroad was, it unfortunately set a precedent in which corporations turned to government to subsidize their projects at taxpayers’ expense. This ushered in the era of crony capitalism that still exists today in the form of bank and industry bailouts, and taxpayer funds diverted to favored industries. The most recent example is the Solyndra scandal, in which a solar panel company declared bankruptcy after receiving nearly $1 billion in taxpayer funds.
Corruption, fraud, waste, and mismanagement still handicap projects undertaken by the government-corporate partnership, and this handicap will continue until the people elect politicians willing to break this dangerous alliance.