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"When, after the mutinies of 1857, the obligation of providing numerous works of improvement had been recognized, it became evident that the ordinary revenue could not furnish the means of ting the necessary outlay. The financial difficulties involved by the suppression of the mutinies were great, and for some years afterwards the necessity of providing barracks and hospitals for the largely increasel force of British troops was so urgent that the progress of other works was crippled.

"In 1864 the principle was accepted, that for the construction of works of irrigation it was right to supply by loan the funds which could not be otherwise provided. This conclusion firet took a practical shape in 1867–68, during the government of Lord Lawrence, in accordance with a scheme drawn up by Gen. Richard Strachey. It was clear that only a comparatively small amount of the necessary outlay could be met from the revenues; the rest was to be supplied by loans.

"I will not describe the various phases through which this policy has passed. The main principle, that railways and irrigation works in India may wisely and without financial danger be constructed with borrowed money, has been consistently carried out, partly by the government directly and partly through the agency of companies assisted by a guaranty of interest or by subsidies from the State.

Various irrigation methods are employed in different parts of the world, being governed by physical conditions and circumstances. In Egypt, where a large proportion of the agricultural products are produced from irrigation, a system differing materially from that above described is in operation. In the Hawaiian Islands great additions to the productiveness of the islands have been obtained by irrigating works, large areas which without irrigation were valueless having been brought under cultivation and found extremely productive and valuable. In this case most of the water supply is from artesian wells, the water being distributed by means of powerful pumps.




How has all of this vast improvement been paid for, and how is it now being paid for and sustained? Here are 36,000 miles of irrigating canals, 70,000 miles of railway, 200,000 miles of telegraph and telephone lines, and many hundred thousand miles of wagon roads, and in conjunction with them elaborate postal systems, bringing the people of the colonies into close communication with each other and with the outside world, and thus proving extremely valuable agents in the material, mental, and moral advancement of the people of those colonies. But however valuable they may be they must have cost immense sums of money-hundreds of millions of dollars—for their construction, and many millions for their annual maintenance.

Where does this money come from? How is it obtained? Does the mother country furnish it? If not, do the capitalists of the mother country iurnish it as capitalists in our own country are furnishing money for railway and telegraph construction? If not, is the cost divided between the mother country and the colony, or is it borne entirely by the colony?

These are practical questions which naturally arise in considering the enormous investments of capital and the enormous annual cost of these great engines of civilization which the successful colonizing countries establish, and which, under modern conditions, are absolutely essential to success in colonial development.


To answer these questions in detail is more difficult than to ask them, because the conditions and circumstances under which these works have been accomplished vary so greatly. In general terms, however, it may be said that the mother country does not furnish the capital with which the improvements in the colonies are made. This answer could not be strictly applied in every case, since there have been occasional instances in which the Government of the colonizing country had advanced or appropriated sums of money for the construction of telegraphs and railways, and for the establishment of postal service. Necessarily in the initial period of the control of an absolutely new and unorganized country the mother country must advance certain sums, especially for the transportation of mails, the construction of the necessary telegraph wires to keep her representatives in touch with the home Government, and for such railway lines and river and harbor improvements as are necessary at least for military service. But once the country is sufficiently organized to enable the raising of funds through ordinary and accepted methods of taxation, the development of these agencies of civilization are paid for out of the revenues of the colony. In some cases the colonial government raises money by loans advanced by residents of the governing country, just as any other government raises money by the issue of its securities.


In the earlier period of colonization the necessary improvements in the colony were made by commercial companies, so called, which were granted certain trade privileges which were of sufficient value to them to justify them in agreeing to make certain improvements, opening roads and facilities for communication, and thus bringing business into their own hands while they were improving the condition of the country and the people. These commercial companies, which were so successful a century ago, were gradually discontinued, but in recent years have been again brought into operation in a more restricted form and have figured prominently in the development of the newer colonies. This is especially true in Africa and in some of the undeveloped islands of the Orient. These companies, such as that in Rhodesia in Africa, others in the German colonies of east and west Africa, and still others in certain of the Pacific islands, are building roads, constructing railways and telegraph lines, and facilitating in every way intercommunication between the Europeans and the natives of the colony, and between the colony and the mother country.

When, however, the colony has reached such stage of organization and financial condition that funds can be raised through the ordinary methods of taxation, it may be said in general terms that the money required for the improvement of means of communication is obtained, either from private sources as railways are built in the United States, or by the levying of taxes within the colony, and not by taxes upon the people of the mother country.


In the case of Java, the early development was made through a commercial company which was granted valuable monopolies of commerce together with the administration of the government, and it advanced a large proportion of the necessary funds for putting into operation the system which has afforded means of communication among the people of the island and between them and the outside

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world. A large share of this expense, however, was quickly levied upon the people of the island through the corvée, or forced labor system, by which they were compelled to furnish the labor by which the roads were constructed, plantations developed, and production stimulated. When the community reached such a stage that it was practicable to raise money through the machinery of taxation, it not only bore all its own expenses, but turned large sums into the treasuries both of the commercial company and of the mother country; and while there have been years in which the Netherlands have been compelled to pay out of its own funds some of the current expenses of the colony and for the development of its machinery of intercommunication, the sums received from the colony have rastly exceeded those so appropriated.


In French and German colonial management the rule which requires all expenditures of this kind to be borne by the colony has not been so strictly applied, and this is probably due to the fact that the colonial systems of those countries are of more recent organization, and that their colonies as a class are yet in the stages of early development. This applies to all of the German and many of the French colonies. The proportion of British colonies, however, which have sufficiently advanced to have developed a definite system of taxation for raising the necessary funds for all purposes is large, and it is only in the newer colonies of South Africa and some of the Pacific islands that funds for the development of the colony are obtained by any other process than that of taxation. Even in those cases where developments have been begun prior to the institution of methods of taxation the use of commercial companies has been of late resumed, and their success and satisfactory work have led to a commendation of this revival of the system under more restrictive rules than formerly by the best students of colonial matters to-day.




This subject of the methods by which the funds necessary for the development of facilities for transportation and intercommunication are obtained is discussed in definite and concise form in a letter recently written by Mr. S. G. Hobson, editor of The Hardwareman and Hardware Exporter, of London, in response to a series of inquiries by the chief of the Bureau of Statistics regarding the experience of the British Government along these lines, as follows:

“In reply to your question concerning the relations of the mother country to the colonies:
“You ask:
"1. Whether the home Government expended any considerable sums of money in the earlier history of the colonies?
"2. Whether such expenditures, if made, have been refunded by the colonies?

""3. Whether the large sums which have been expended in permanent improvements, such as railways, telegraph lines, public highways, harbors, etc., have been supplied in part by the home Government; and if so, in about what proportion?

"4. Whether the troops in the colonies are supported by the home Government or by the revenues of the colonies themselves; and “5. Whether the colonial system is generally looked upon by the people of the home Government as advantageous or otherwise?'

“In reply to the first question: No; the Government has not spent any considerable sum of money in the earlier history of the colonies, so that, secondly, there has been no return of initial outlay by the colonies. It is necessary here to carefully discriminate between colonial expenditure, pure and simple, and home Government expenditure for defense. Wherever public works have been of strategic value, either from a military or naval point of view, the home Government always expends a fair share. For example, the harbor of St. Lucie, in the West Indies, was recently put into condition at a cost of £75,000, to which the Government contributed £25,000; and in like manner many of the harbors throughout our colonies, and particularly in South Australian waters, have been partially subsidized by the home Government.

“But so far as colonization is concerned it has been a natural process, the home Government only taking cognizance of the colony when it has grown sufficiently to warrant self-government.

“Then, again, there are occasionally grants in aid in times of colonial distress. For example, the West Indian sugar plantations have proved unremunerative, a grant in aid is made to them, and it may or may not be repaid, but sometimes the colonies have been unable to meet their liability and the Government wipes out the debt.

"3. With regard to this question, no governmental money is expended on railways, telegraph lines, or public highways, excepting so far as they are covered in my answer to No. 1. But the Government will often meet the case by giving a guaranty. But if the Government guaranty be given in colonial projects of this description capital is always forthcoming, and there is hardly any case on record where the Government has been called upon to make good its guaranty. The only case in my memory is that of the Turkish bonds, but as a general rule it is perfectly accurate to assume that the Government guaranty always meets the financial dilliculty. For example, there is an agitation in South Africa for a railway from Cape Colony to Cairo. Mr. Rhodes has been interviewing the home Government, asking not for capital, but for a guaranty. The Government will only guarantee the railway so far as it considers it of commercial value, and has given its guaranty for one section of this project. Mr. Rhodes will now have no difficulty in obtaining money from the nation, for it is covered by the guaranty.

“The troops in the colonies are paid directly by the home Government, but the leading colonies pay the Government a proportion. The amount, however, is proportionately very small and by no means regular; some colonies pay and some do not.

“Cape Colony has recently offered the home Government the price of a first-class battle ship. But the payments on the part of the colonies are entirely voluntary, the general principle being no taxation without representation. There is a movement here for iinperial federation, and doubtless in the future this question will be put upon a proper foundation.

“In reply to question 5, the opinion here fluctuates as to the value or otherwise of colonial expansion. Roughly speaking, the average Britisher is ready to accept responsibility, but he is not particularly enthusiastic about it.

“The fact is, we are a colonizing nation, and among the well-to-do classes it is quite the usual thing for the younger sons to try the colonies for a few years. The law of primogeniture is partly responsible for this, while our industrial system is constantly throwing out large bodies of men who at once emigrate.

“Of course the emancipation of the slaves was a capital investment of £33,000,000, which the colonies have never repaid and never will."

No. 4-14


“The rent from land constitutes the principal source of Indian revenue,” says Sir George Chesney in his Indian Polity, “and its realization is the subject which principally engages the collector's attention. He is also the fiscal representative of the government for receiving all other descriptions of revenue levied from his district, acting as superintendent of excise and assessor of the income, license, or other personal taxes. Further, he is the government treasurer, as well as the banker for the different public departments, which keep their public moneys in his treasury and make all payments by means of checks on the collector. In addition to these specific duties he has charge of the local funds for public works and other purposes appertaining to the district.

“In his capacity of magistrate the same official is the general representative of the government within his district. With him rerts the responsibility for peace and order being maintained, the superintendence of the police, and the management of the jail. It is to him that all classes of the people look for aid in times of disturbance, and by him would be initiated any proposals needful for cases of emergency, as well as, at all times, for the improvement of the well-being of the district. In addition to these general responsibilities, the Indian magistrate has extensive judicial ag well as ordinary magisterial functions. As his name imports, his court is the tribunal for first investigation of all criminal cases; but only those involving a heavy punishment are committed to the court of session. The rest he finally disposes of himseli, his powers extending to a sentence of two years' imprisonment and fine of 1,000 rupees.”


The following statement regarding the method by which the railways and other public works of India have been constructed was supplied by an officer of the British Government in response to a series of questions by the chief of the Bureau of Statistics:

“1. India's own taxation pays for all costs of her government, her development so far as public money is concerned, her army, her State.constructed railways,' and her irrigation. Her railways and her great irrigation works have been mostly constructed with money borrowed, partly by the Indian government, partly on guaranties or subsidies from that government. Indian taxation meets all charges for interest on and repayment of such loans. The British treasury has not given and does not as a rule give any direct contribution or help toward the cost of governing or developing India. During the past fifty years England has twice given contributions toward the cost of Indian army operations outside India. On the first occasion England gave £5,000,000 toward the cost of the second Afghan war (1879-80), and on the second occasion (1882–83) England gave £500,000 toward the expenses of the Indian contingent in the Egyptian campaign. For the rest, India pays and has paid all costs of her troops, British and native.

" 2. India's revenues have greatly increased during the past fifty years; measured in rupees, these revenues hare been trebled during that period, while her population has probably not increased more than 50 per cent. India's expenditure is also about treble as large as it was in 1850. India's yearly liabilities in England hare during the half century increased four and one-half fold as measured in gold, and sevenfold as measured in rupees. These 'home charges are for interest on loans, for army and other stores, for railway plant and material, for pensions to retired employees, and for the cost of the India office.

"But even with this greatly increased expenditure both in India and in England, it is by no means probable that the burdens on the people are actually heavier in proportion to their means than they were in or about 1850. India's greatest and most valuable asset is her land and her agriculture. During the fifty years the cultivated area of the several great provinces has increased from 20 to 200 per cent, and it has probably increased 60 per cent on the whole.? During the same period the average prices realized by the peasant farmers for their produce have risen from 60 to 80 per cent. The rise at the chief seaports has not been so great, but huge tracts, formerly landlocked, have been linked by railway to the seaports, prices have been more or less equalized over all India, and the average rise has been as stated. Now staples of agriculture and commerce, such as jute and tea, have been introduced and have become important. Old staples, such as oil seeds, have greatly extended in response to export demands.

“ In illustration of the rise in agricultural values, it may be mentioned that in one province, the Punjab, the registered sales of land show that during the past thirty-seven years the average selling price of land had risen from 7 rupees to 65 rupees per acre, and from nine to sixty-two times the amount of land revenue assessed thereon.

“By the expenditure on irrigation works, both from borrowed money and capital, the area of irrigated land has been greatly increased. The average yield of irrigated land is generally more than twice the value of the yield when the land is unirrigated. Over large areas of rainless country the land can yield no crops whatever without irrigation. The water rent paid by the peasants for canal water, and gladly paid, more than covers the cost of maintaining the canals and paying interest on their capital cost.

“Some industries have waned during the past fifty years, such as the cottage wearing industry and the village iron industry. The products of cottage looms and of rural furnaces have been beaten by machine-made fabrics and imported iron. But on the other hand, a great industry has sprung up in factories for spinning and weaving cotton and jute. Fifty years ago India produced hardly any coal, now she produces seven-eighths of the coal she consumes, and exports a good deal besides.

“Fifty years ago India had no railways, now she has 23,000 miles of open line. During the last three years she has opened on an average 925 miles annually. Her railways earned 275,000,000 rupees * last year, and yielded net earnings of 150,000,000, or at the rate of 5.37 per cent upon the capital expended. It is true that mainly owing to the obligation to pay a large amount of guaranteed interest on railway stock in gold, there is, as the result of the railway account, a net annual charge to the Indian treasury of 10,600,000 rupees on the average of the last three years. But it is obvious that the construction of the railways of India must have added enormously to the resources of the population.

“In 1858 India's external trade (export and import) with other countries was valued at 400,000,000 rupees; last year it was worth 2,095,000,00 rupees. India's coasting trade and internal traffic have increased in even greater proportion. This increased traffic certainly has enhanced the power of the people to bear the fiscal burdens lying upon them.

"When it is said that India’s revenues have been trebled, rising from 334,000,000 rupees in 1856 to 1,015,000,000 in 1899, it must be recollected that 292,000,000 accrued from services (railways, canals, telegraphs, post-offices) which were neither given nor paid for in the earlier year.

1 A large proportion of her railway system has been constructed by companies with or without a government guaranty.

2 All articles of consumption are not, however, dearer. Cotton goods worn by the people are much cheaper. Salt, though subject to taxation, is over the greater part of India very much cheaper than it was forty years ago.

3 The irrigated area has probably more than doubled, but the precise figures for the earlier year can not be given for all provinces. 4 The rupee may be taken to be worth one-fifteenth of £1. A million rupees is therefore about equal to £60,000.


'Among the arrangements which enable the Indian people to bear their burdens, the famine relief organization is not the least important. Nothing of the kind was attempted fifty years ago. Now 15,000,000 rupees are paid by the people of India every year as an assurance to provide against the cost of relieving distress and saving life during famine. The periodically recurring famines are met by an elaborately organized system of relief; and in consequence of that relief, the people and the country recovered themselves in 1898 with marvelous rapidity.

Now, as always in the past, the great majority of the natives of India live poorly and on small means. But it is believed that, notwithstanding the increase of population, the standard of comfort among the people is higher than it was fifty years ago. The people certainly consume a much larger quantity of imported goods; they absorb a larger yearly importation of precious metals; they trade much more, and they travel much more; more of them are educated; and the country yields much more, and more valuable produce than it did fifty years ago.

"It is not possible to prove the position mathematically, but it would seem that good reasons have been shown for the belief that the fiscal burdens on India for the bulk of the population are lighter rather than heavier than they were fiity years ago, due regard being had (1) to the people's power to bear them, and (2) to the benefits which they receive from the State.”

(1) The main arterial railways passing on their way across India through native States have been constructed, like the railways in British India, either by companies whose capital is guaranteed by the Indian treasury or directly at the cost of that treasury. But native States have been encouraged to make at their own expense, and have so made branch lines either to their capitals or to other parts of their dominions. As specimens of these branch lines may be mentioned the Gwalior Railway, the Hyderabad Railway, the lines in Jodhpore, and the lines in Kathiawar. In one or two cases these native State lines have been constructed by companies on guaranties from the native State treasuries.

The British Governinent of India reserves control and supervision over native State railways, as it does over guaranteed companies' lines, and the tariff of rates and the arrangements are much the same as on adjacent lines in British territory. In some few cases, where native State lines have been very cheaply constructed, rates rule a little lower than on ordinary British lines.

(2) Imported salt, imported liquors, and other imported goods passing into native States have paid the British import duties at the seaports. No refund is granted on the goods passing into native States, and no duties? whatever are levied on goods pa-ring from native States into British territory. Native States used to levy transit duties very freely on goods passing their frontiers in either direction, but for many years the British Government has spared no effort to free the internal trade of India from trammels of this kind, and for the most part transit or other internal duties on traffic within India have ceased, save on such articles as are described in the marginal note above. In some parts of India, British and native, cities and towns raise most of their municipal revenue by octroi duties. But constant effort is devoted to preventing these octroi taxes from operating as transit duties on trade.


On this same subject a distinguished officer of the British Government in India, in a letter addressed to the chief of the Bureau of Statistics, replying to certain questions propounded by him regarding the methods by which the cost of railway construction and other improvements in India are borne, says:

" The whole cost of Indian administration and of.public works and improvements is borne exclusively by the Indian taxpayer. Every rupee spent in British India, including the cost of the British army in India and His Majesty's vessels in Indian waters, and every shilling spent in England on account of India (including military and civil charges there and the cost of the India office), is raised from the revenues of India.

“No guaranteed loans, in the ordinary sense of the term, have at any time been raised for railways or other public works. When a railway line is undertaken by a company under a guaranty from the government, the phrase means that the government of India, guarantee to shareholders the payment from Indian revenues of a minimum dividend on the capital expenditure on the line.

"The loans raised by the government, a large part of them having been spent in railways and other improvements, are not guaranteed by His Majesty's Government (that is, by the British taxpayer). The public debt of India consists of a sterling (gold) debt raised in London and a rupee (silver) debt raised in India. The interest in both cases is paid from Indian revenues, and they are the sole security for the loans."


The details of the method by whic's the vast sums necessary for the construction of the Indian railway system (chiefly owned by the Indian Government) have been rzi i are given in the India Office List, a semiofficial publication for the year 1901, as follows:

“The three systems on which railways have been constructed and worked in India are the guaranteed, the State, and the assisted, though each of these again admits of subdivision. The original great trunk lines of India are due to the guaranteed companies. The contract between them and the government was as follows: The government gave the land required, free of charge; it also guaranteed interest generally at the rate of 5 per cent on the share capital raised with its consent, and a lower rate upon debenture capital. A general supervision of the working of the railway was also retained, and stores and troops were to be carried on favorable terms. If the net profits in any half year fell below the amount of guaranteed interest the government made up the deficiency. If they exceeded this amount the surplus was equally divided between the government and the company. Moreover, the government had the right of buying the undertaking at specified dates on payment of the value of the stock calculated at its market price on the average of the three preceding years. In this way the East Indian Railway was acquired in 1880, the Eastern Bengal Railway in 1894, the Sind, Punjab, and Delhi Company's lines in 1985–86, the Oudh and Rohilkhand Railway at the end of 1888, and the South Indian Railway in 1890. In 1870 a new policy of railway development by the direct agency of the State was inaugurated, but in 1880-81 a return was made to the system of encouraging private enterprise by State assistance. Both agencies are now employed side by side. The experience gained of the working of the old guaranty system has, however, suggested various modifications in the relations between the State and the companies which have more recently been formed for the construction and working of railways, and the nature of the assistance granted now varies considerably. In some instances, of which the Bengal and Northwestern Railway is the most important, lines have been constructed without any direct pecuniary assistance; in others a subsidy or limited guaranty has been granted. The agency of private companies has also been employed by the government, both in the construction and working of State lines. In all cases the government has the power of taking over the railway at specified periods on stated terms.

1 Alcoholic liquors, opium, salt, and one or two other articles on which specially high taxation is levied are the only exceptions to this rulo.

“On December 31, 1899, there were 23,225 miles of open railway in India, of which 1,410 miles were opened during the previous twelve months; 3,414 miles more were under construction or sanctioned for commencement. The chief extensions of the year were on the Bengal-Nagpur, Northwestern, Tapti Valley, Bengal and Northwestern, Godavari Valley, and Gwalior lines. The total capital outlay on railways, up to the end of the year 1899, was £190,684,647, and the cost of the open lines averaged about £8,290 per mile. The gross earnings of all lines for the year 1899 were £19,361,012, or £1,070,563 more than in the previous year; working expenses came to rather less than 48 per cent of the gross earnings; and the net revenue yielded 5.32 per cent as against 5.37 per cent in the previous year on the capital expenditure on the open lines.

“The general results of the working of the various classes of Indian railways up to December 31, 1899, are given in the following table:

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“Among the works which young colonies must undertake and complete quickly the most important,' says M. de Lanessan, "are the construction of highways and railways. The ways of communication are the most effective means for pacifying and maintaining order in the country; without these convenient means the economic transportation of raw materials, fertilizers, products of agriculture and industry would be impossible and colonization could not go on.

“If at the beginning of our protectorate over Madagascar, we had taken the trouble to construct roads, the utility of which was recognized by all the world, and later on we had built railways over these roads, the military expedition of 1895 might have been avoided; we should have economized more than a hundred millions and the lives of five or six thousand men, and it is probable that we should never have had any need of keeping in the country the six or seven thousand soldiers whose number is no more regarded sufficient and who cost us more than fifteen millions per year.


“It goes without saying that ways of communication are no less indispensable for the development of colonization itself. How could a colonist start an agricultural or industrial undertaking in a country where there are no means of transporting the materials necessary for his buildings, his outfit, the raw material to be worked, or the products of his field or factory? This, however, is the exact state in which all our establishments of Indo-China, the western coast of Africa, of Madagascar, etc., find themselves. Aside from the railway between Dakar and St. Louis (150 kilometers) and that between Kayes and Bafoulabê (100 kilometers) we have not constructed a single railway in our immense domain on the eastern coast of Africa. As regards roads, they are almost unknown anywhere. In all Indo-China there are 50 kilometers of narrow-gauge railway between Saigon and Mytho, in Cochin China, and 105 kilometers of 60-centimeters gauge between Phu-Lang-Thuong and Langson, in Tonkin, and this in a country which extends along the China Sea, or over 2,000 kilometers in length, measuring from 200 to 400 kilometers in width. In Guiana no roads or railways are to be found, and it is as hard to traverse the country now as it was one hundred years ago. Our old West Indian colonies possess not a single kilometer of railway. In Réunion, about ten years ago, a railway about 60 kilometers in length was constructed, but we ceased building, as if worn-out by this effort. Tunesia had to wait more than ten years for the building of its first railway. At present it has but a few trunk lines. Even Algeria, notwithstanding its twenty-five millions of guaranteed interests which the mother country pays annually for its railways, is far from having all the railways which would be useful in giving value to its different parts.


“While we thus show the most extreme negligence in creating the most indispensable economic instruments of colonization, the English meanwhile cover their colonies with railways. In the extreme Orient they connect by rail India and Afghanistan on the one hand and Burma with China on the other hand. In Australia they push the railways from all parts right into the desert. In Africa they have already constructed in the south more than 2,000 kilometers of railroads which, parting from the Cape, move toward the center of the Dark Continent to meet the Egyptian railways, which, coming down from the north in a southerly direction, measure already about 3,000 kilometers in length. Simultaneously they have begun the construction of a railway which is to connect in Ouganda the western coast of Africa with the region of the great lakes of Victoria and Albert Nyanza, and they announce the building of another road, which, parting from Sierra Leone (Freetown) toward the western coast, would precede the former, etc.

"All these railways are to center at the coast of the great lakes and will place the greater part of the commerce of Africa in the hands of Great Britain even before we shall have traced those lines which we ought to have by this time in the basins of the Senegal, Niger, Gabon, Kongo, etc.

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