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Railways – The First Big Business Railway companies were from the start giants in terms of capital employed and numbers of employees.

The Analyst

Railways were big businesses long before the creation of the Big Four after World War I (London, Midland & Scottish, London & North Eastern, Great Western and Southern). Compared with firms in other industries the railway companies were from the start giants in terms of capital employed and numbers of employees. In 1825 there were only eight firms in Britain with a capital of more than £1million – four canals, two docks and two insurance companies. The first main line railway, the Liverpool & Manchester (LMR) opened in 1830 had a capital of some £600,000.  By 1840 16 railway companies had more than £1 million authorised capital and the London & Birmingham (LBR) had £5 million. By 1850 the  recently amalgamated London & North Western (LNWR) and its constituents had raised £25 million and the industry as a whole over £200 million so dwarfing the fixed investment in cotton, iron and engineering. Like canals and  docks railways were authorised by Act of Parliament while it was difficult to form joint stock companies before the legislation of the late 1850s and 1860s, but even so in 1870 the seven largest companies in Great Britain were all railways and the industry as a whole was employing 275,000 or 3.3 per cent of the country’s entire male labour force.

The LBR demonstrating it had arrived in the  capital: The Entrance to the new Euston station (C.F Steffens, published 1837 before completion)

 

The railways not only owned the track and stations but also provided locomotives and rolling stock, both of which they soon started manufacturing, as well as undertaking ancillary activities such as docks and hotels. Moreover the industry was highly concentrated in a relatively small number of firms.  As early as 1850 despite the very large number of companies, the fifteen largest accounted for 75 % of gross traffic revenue and 61% of paid-up capital in the industry.  As the capital of the Stockton & Darlington Railway (opened 1825) was drawn largely from local sources or from the close-knit network of Quakers, so its management was closer to the personalised or partnership form of firm widely found in industry at the time. Later railway companies developed a form which soon saw a divorce between ownership and control.  The railways had large volumes of plant, both mobile and fixed, and a huge workforce over an extensive area, but requiring high levels of control to secure efficiency and safety. This scale of business made new demands on business.

The boards themselves set up committees of their members to oversee particular departments such as traffic or locomotive. Railway directors were unpopular figures particularly at the time of the Railway Mania and the subsequent sharp drop in dividends, but in the principal companies they were generally drawn from the higher reaches of mercantile society, industrialists and leading county landowners. But this did not resolve the problem of management. On the formation of the LNWR George Carr Glyn, the chairman and a City banker with extensive experience in insurance and docks, emphasised the success of the constituent companies and the difficulties with which they had to struggle in carrying out what in the first instance had been nothing but an experiment on the largest scale.  Glyn when a member of the LBR board had urged that each department should be directed by an officer responsible to  the board and the details of management should be left to him.  The board however would need a confidential superior officer to generally superintend the working of the system.  This in essence was the genesis of the general manager, and approximated to the position occupied by Mark Huish in the LNWR after 1846.  Structurally eventually the companies were generally of the centralised, departmental or functional type with departments headed by specialist managers, often with deputies for particular districts, responsible for operations, goods, accounts, legal affairs, etc who were coordinated by the general manager. Here were the beginnings a divorce between ownership and control, unlike in most manufacturing firms of the period.  It was a form which was denoted in the twentieth century as managerial capitalism.  

The Analyst

About David Hodgkins

David Hodgkins was a career civil servant in the Ministry of Labour and latterly under secretary in the Department of Employment and Health and Safety Executive. Since retirement he has written articles and several books on railway history, concentrating on the business aspects, notablyThe Second Railway King, the Life and Times of Sir Edward Watkin. 1819-1901, and George Carr Glyn, Railwayman and Banker, which deals with his part in the building up of the London and Birmingham and London and North Western Railways, both of which he chaired, and the relations between Glyn’s Bank and railways.

Articles by David Hodgkins

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