The Franchise as Hybrid EDO
The franchise represented an early form of privatization; or, if one prefers, the franchise was an early form of utility regulation. To me the franchise is another attempt to develop a hybrid private/public EDO necessary to deal with Gilded Age, Big City streetcar, electric or utility-like infrastructure. Franchises were granted chiefly by municipalities, but municipalities needed state authorization to do so. Not infrequently the state would require lucrative franchises to secure a corporate charter, in addition to the municipal franchise. The reasons for this bipolar structure are clear only to the truly cynical. Franchise politics was a truly messy affair.
The franchise was either exclusive (sole-sourced) or competitive, tending to the former over the years. The franchise extended for a specified term of years, requiring periodic renegotiation, with new taxes, regulations, rates and “donations.” Extra provisions such as fire hydrants or street paving and upgrading of pipes were common. Books could be inspected and stock issuance regulated because issues of stock speculation and bribery appeared early on. Rates and their burden on the urban poor and streetcar riders were only two of many very visible issues associated with franchises; safety and (in earlier years) animal cruelty were also issues. Cities received annual payments, similar to today’s payment in lieu of taxes. Property was assessed at negotiated levels. Franchises, often characterized in academic literature as corporate giveaways, were much more complicated in real life. By the turn of the century rates were about a nickel. The real issues were congestion; no transfers between competing lines; safety and comfort; slowness and just plain crappy service—like riding an airplane today.
The Gilded Age decision to subcontract infrastructure to private franchises has been controversial; it generated a great deal of concern at the time. I argue that transportation infrastructure, from the municipal perspective, was an unsuitable infrastructure for public ownership and municipal investment. Privatization of any infrastructure became the foremost ED-related issue of the Gilded Age. In that Gilded Age transportation and power infrastructure—with its potential for disruptive innovation; its centrality to urban residents and lifestyles which made it politically sensitive; and its vulnerability to corruption—required developing a sophisticated HEDO that met the legal constraints associated with “gift clauses.” Municipal (and state) government had yet to develop either bureaucratic capacity or effective governance sufficient to the task.
Infrastructure, once installed, is a service that has to be (1) managed, (2) cost effective, (3) quality controlled and (4) indefinitely supplied to businesses, neighborhoods and even to adjacent unincorporated/incorporated areas. The larger the geography, the lower the rates and the higher the debt level generated. Someone has to pump and filter water; someone has to generate and maintain the distribution of electricity; and someone has to ensure trains run on time. Putting the pipe in the ground or digging the subway tunnel is only the first step. This requires that anybody attempting to install and operate infrastructure had better know what they are doing and have access to long-term financing/debt issuance. Under these constraints, municipal ownership of these infrastructures was not a foregone conclusion. Indeed, one municipality’s efforts to own the gas plant powering its street lights degenerated into the patronage base for Philadelphia’s Gas Trust Gang under James McManes. Ironically, to break up that political machine the infamous gas plant was returned to private ownership in 1894.
Franchise horror stories occurred in every city. The first street railway franchises were apparently in New York City (1851). Fares were set at five cents and the first boilerplate for a franchise agreement was drafted. It was vague and incomplete, and was improved upon by each new city entering into a franchise over the next 50 years. The terms of agreement for those early franchises were 50–100 years; Albany would grant a franchise for 1000 years, which exceeded Buffalo, whose term was 999 years (almost as bad as Chicago’s present-day parking meter franchise). Gas lighting started in 1816 Baltimore, and by the 1820s cities issued franchises to private firms for that. When electrification arrived in the 1880s, cities redrafted gas/street light franchises to accommodate it. Even the Brooklyn Bridge cable streetcar railway, originally owned and managed by New York City and Brooklyn, was transformed into a franchise in 1889 (Glaab, 1983, pp. 189–92). Cities were saved from these horrible early franchises after the 1890s when franchise companies consolidated (or went bankrupt) to achieve efficiencies of scale and to take advantage of new, expensive and constant innovation. Whatever the corruption and inefficiency franchises involved, the tradeoff was that urban residents got some of the best Gilded Age infrastructure the world had to offer (Teaford, 1984).
By the late 1870s union-backed candidates won elections to city legislatures; they captured the mayor’s office in Scranton, Utica, Birmingham and Toledo. In a dramatic departure from the politics associated with businessman mayors, government ownership of the urban infrastructure became more common. In 1881 the Mechanics Assembly of San Francisco pressed for gas, water and street-sweeping, and in 1886 no less than Henry George himself was invited to run for New York City’s mayor on a platform of public ownership of its mass transit (Radford, 2013, p. 74). Most of these more “radical” demands carried over into decades beyond this chapter’s focus, but in 1894 New York City voters approved in a referendum the city’s ownership and operation of a subway; in the same year Detroit voters approved a street railway; in 1902 Seattle voters approved a bond issue for a municipal-owned power plant; and in the same year Chicago voters approved owning its mass transit system by four to one (Radford, 2013, p. 74).
The transition from private franchise to public ownership may sound good to many, but in the years after the Civil War at least five radically different modes of urban transit were employed in our Big Cities—and the expense and investment was made largely by private franchises. The operation of these modes of transportation, whatever their deficiencies, was also in private hands—no small matter given the lack of bureaucratic capacity and the weak, often corrupt governance of Gilded Age Big Cities. With considerable irony, the subway, bus or electric streetcar transferred into public hands and onto government budgets simultaneously with the arrival of newer forms of transit innovation (car, plane, truck and drone). The heritage of public bus lines and metro subways/elevated rail systems confronting our cities today hints that, whatever its messiness, the franchise may have served Gilded Age public purposes better than we like to admit.
Ron W. Coan 