Railways as patient capital.

Why are railways mostly in the public sector? Interest rates define a time limit for markets. Projects with longer break-evens cannot be funded by business alone. Corporate 'franchise' arrangements overcome the limit by means of revenue guarantees which transfer risks to government. Innovations originate bottom-up in private enterprise. Positive externalities create demand for universal provision but scaling up cannot be financed commercially. In the British railway manias of the 1830s, 1840s, and 1860s speculative fever overwhelmed prudence. Overinvestment left an excessive infrastructure legacy and wiped out windfall profits. In other countries railways required external support. Expanding access gave rise to stand-offs with investors which ended up in government regulation or takeover. The tramway boom of 1870–1914 followed this pattern, initially with horse power and then electricity. In the UK railway privatization of the 1990s, the free market delusion was confounded by the infrastructure requirement for long-term commitment. [ABSTRACT FROM AUTHOR]