Investment in Australian Economic Development, 1861–1900

COMMUNICATIONS AND ECONOMIC GROWTH

While private entrepreneurs were preoccupied with the more lucrative tasks of equipping rural enterprises and establishing the major assets of urban society, it was left to governments to make the literal, physical links between towns and rural areas and between the Australian interior and the ports through which trade with the outside world flowed. The development of communications in roads, rivers, harbours, railways and electric telegraphs during the second half of the century was a massive undertaking and was carried out by the colonial and local government authorities by a remarkably sustained process of investment. This task brought government authorities into the position of large-scale borrowers overseas, and, within the domestic economy, established governments as leading investors and entrepreneurs. Here was a rapidly growing avenue of Australian investment in which profit considerations came to play little part, which rested on the expectations of long-term and indirect gains and which depended on foreign financing to supplement local resources.

In the process of Australian capital formation, government authorities had other contributions to make, particularly in the growth of water and sewerage and of public buildings. In practice, public investment in urban facilities, other than those of roads and railways, was not very substantial. The relative importance of communications in public investment can be seen readily in the fact that, throughout almost all of the forty years after 1860, the construction of new assets in communications accounted for 75—80 % of all government new capital formation. The essential novelty of the Australian experiment lay in the fact that railway development, which dominated the communications scene, was the preserve, almost exclusively, of the colonial governments. While this imposed on governments the need to command large capital resources, a situation soon developed in which the colonial governments were replete with funds. Government access to capital was due basically to the re-orientation of British investment towards New Zealand and Australia but, in addition, to the ability of the governments to divert resources from the private sector to the detriment of the process of economic growth as a whole.