Railroads and the Competitive Urban Hierarchy
Early transportation infrastructure (roads) meant access to a city’s hinterland— hinterlands were the source of domestic migrants, raw materials and agricultural products to process and export domestically and internationally. By the 1810s or so the combination of domestic migration, immigration and transportation innovation facilitated significant city-building in the nation’s interior. New cities grew rapidly, presenting both opportunity and rivals for control of the hinterland in between. Distances were greater, as were trade volumes; water-borne transportation couldn’t satisfy demand. Railroads could. Success in canal-building inspired a novel (1820s), horrifically expensive transportation innovation: the steam locomotive. Not unlike today’s rocket ship to Mars, the locomotive offered opportunity and risk; and, as a public investment, generated substantial skepticism as an alternative to water transportation.
The founding of many hundreds of cities/towns each decade stimulated competition among cities, and necessitated linkage with some form of transportation infrastructure. New urban areas competed but also offered opportunities for new markets.
City development and prosperity were tied to important transportation improvements that permitted easier, faster, and cheaper commercial penetration of the sprawling new nation … Transportation innovations and … commercializing the city hinterland could spell the difference between stagnation and prosperity … With the introduction of each transportation breakthrough, cities and the political leaders faced the prospect of fierce competition with other cities, old and new, to win economic domination over their regions … political decisions could not help but be influenced by the rise of regional rivalries for economic growth. (Kantor and David, 1988, p. 40)
The Erie Canal engendered considerable apprehension in Baltimore, Philadelphia and Pittsburgh that New York (New York City) would steal the Ohio hinterland and exploit the agricultural production of the northern Great Lakes areas. Philadelphia, the nation’s second largest city in 1830, felt further threatened by rival Baltimore, the third largest city with only 200 fewer residents (Angel Jr., 1977, pp. 111–16). Fearing Baltimore would establish a trade route into Ohio, Philadelphia believed it held an advantage of better Ohio access through Pittsburgh—that meant the State of Pennsylvania would issue bonds, not the municipalities. Baltimore on the other hand was dependent on local investor/banking institutions, and surrounded by hostile states that placed barriers on Maryland-owned infrastructure that crossed state lines.
The state of Pennsylvania provided key financing through bond issuance. There was, however, a problem: the state could not decide between competing transportation modes, and chose to develop a hybrid infrastructure composed of both. Believing rail too risky, it started construction (1826) on a “mongrel” transportation system composed of a network of canals and some rail (the Pennsylvania Mainline) to Pittsburgh. Baltimore’s private entrepreneurs, however—unimpressed with canals that froze in the harsh winters, and believers in new rail engine technology—put their money into the startup of Baltimore City’s Baltimore and Ohio Railroad (B&O, 1827). The race was on.
B&O laid track across Maryland while experimenting with new locomotives; for example, in 1830 the famous little engine that could, the Tom Thumb, ran a test run on B&O. In 1837 B&O crossed the Potomac at Harper’s Ferry Virginia. By that time the city of Baltimore had established a commission to work with the railroad, and in 1836 the city purchased $3 million dollars of B&O stock and another $1 million in the related Baltimore and Susquehanna Railroad. Because neither Pennsylvania nor Virginia wanted Baltimore to succeed, roadblocks were placed in B&O’s path. B&O did not reach Wheeling until 1853—25 years after construction had started. Post-Civil War acquisitions by which B&O acquired key Ohio rail lines ultimately provided back door access to Pittsburgh—in the 1880s!
Philadelphia proved no more successful than Baltimore. Pennsylvania spent nearly $100 million dollars on its mainline canal/railroad system—a project directed by a private chartered corporation (Bruchey, 1968, p. 132). Its choice of a mixed canal–rail infrastructure produced a dismal failure. Construction was faster than B&O; but the disadvantages of two infrastructures, more expensive (rail) and closed in winter (canal), compelled numerous break-bulk transshipment points that slowed passage, making it yet more expensive. Philadelphia, while it “beat” Baltimore, lost out to the more important competition: the Erie Canal that handled more traffic and hauled heavier cargoes. Western farmers used the Erie Canal, and New York City became the end-point for midwest grain. Had Philadelphia chosen an all-rail four-season route it would have been more competitive.
Railroad competition never really abated; it only got worse. Cities needed railroads and would do almost anything to acquire or improve railroad access. An example of rather extreme municipal involvement is Cincinnati’s 1869–73 ownership and operation of a railroad to Chattanooga, Tennessee. Authorized by the state legislature, the municipal-owned railroad was an “effort to shore up the city’s economic decline relative to faster-growing cities such as St. Louis, and Chicago” (Dilworth, 2011, p. 258). Suffice it to say, every major (and not so major) city of the period buried in its scandal closet an outlandish railroad dependency story. If a city did not connect to other cities, its future was obvious.
But, as we are fond of saying, all good things must sooner or later come to an end. The “end” of corporate charters came after the incredible number of scandals and private/municipal bankruptcies that followed the Panic of 1837. Over a decade and a half five states temporarily defaulted and one outright repudiated some of its debt.
A wave of revulsion against state (and municipal) participation internal improvements swept over the Old Northwest and between 1842 and 1851 all six of its states bound themselves constitutionally not to make loans to improvement enterprises. In addition, Michigan, Indiana, Ohio and Iowa also prohibited stock ownership, Maryland, Michigan and Wisconsin prohibited state works, and Ohio, Michigan and Illinois abandoned their extensive programs in state construction. Pennsylvania sold part of its state stock in 1843, Tennessee virtually abandoned her improvements program, and in early 1840’s [sic] Virginia somewhat checked hers. (Bruchey, 1968, p. 134)
This constitutes the first phase passage of state constitutional “gift provisions.” We will return to these gift provisions later in the chapter because they left an indelible mark on the profession and the practice of economic development. These constitutional provisions theoretically meant that corporate charters were unconstitutional, reopening the search for a hybrid public/private EDO. The next experiment worked a bit better—at the expense of public accountability.
The geography of railroad competition expanded hugely with Lincoln’s decision to open up the West with homesteading land grants. The Homestead Act and Transcontinental Railroad legislation applied lessons learned from the 1850s Illinois settlement managed through contract by the Illinois Central Railroad (ICRR).13 In this manner ICRR put meat on the bones of ED attraction and recruitment for the next 150 years. It is from the ICRR that chambers copied their attraction campaigns; it is from ICRR that the South learned how to hijack northern firms; and, ironically, to counter the South, northern and midwestern cities copied the South.
The Illinois Central Railroad and ED Attraction
To learn from ICRR necessitates moving beyond the railroad’s activities. Railroads were land-speculating monopolists that controlled prices, gouging homestead farmers which, in turn, triggered a semi-revolutionary Populist movement that fractured American politics for more than a generation. Railroads literally held for ransom individual towns and cities, threatening to bypass them unless sums of money were paid. Stephen Ward (1998, pp. 23–4) states that by 1875 300 municipalities in New York alone had paid sums to railroad companies to be included in their network. Cheyenne’s Board of Trade in 1870 paid $280,000, as did Denver and a small city of 7000 in California (Los Angeles). Eventually the Interstate Commerce Commission, a major Progressive reform, was established (1887) to deal with these railroad abuses. To learn what we can about our history, however, we need to put these abuses momentarily aside and appreciate ICRR’s path-breaking ED innovation.
Illinois badly needed settlers, so the Illinois legislature authorized land grants for individual sale and contracted with ICRR to structure/operate the program (Ward, 1998, p. 11). Stripped to its essentials, state government delegated to the ICRR management of its people, its business attraction and its city-building economic development strategies. ICRR launched an extensive advertising campaign across the eastern states and Europe starting in 1854. Its tools included: mass promotional circulars; advertisements in major newspapers and trade journals; editorial support by newspapers; a promotional handbook; advertising on streetcars; recruitment agents in immigrant entry areas; and agents distributed throughout Canada and Europe (especially in Scandinavia and Germany). “By the early 1860s, the ICRR’s internal US campaigns … [promised] homes for the industrious in the garden state of the West” (Ward, 1998, p. 14). ICRR’s success spurred other neighboring states, Iowa in particular, to start their own people-attraction efforts, and it also pioneered the art of “town site promotion.” First, it set up (apparently semi-illegally) specific town land development corporations (little EDOs) throughout Illinois; each attracted investors to fund infrastructure and costs for each town. The land was platted and sold in individual lots or bundles of lots. One ICRR land development corporation at its southernmost terminus, Cairo, sold a bundle to a certain Charles Dickens, in an Ebenezer Scrooge moment (Ward, 1998, p. 21).
The ICRR model was in essence government contracting with a private corporation to devise and manage its core economic development strategies. The railroad was given access to the necessary tools (land grants, tax abatement, eminent domain, public financing), and then left to its own devices. The railroad recruited through sophisticated promotional programs; city-building followed. Privatist to its core, the ICRR program achieved spectacular success in filling up the Illinois countryside.
Ron W. Coan 