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ECONOMICS

Efficiency on tracks

The São Paulo Railway Company was an exception in the Brazilian railway industry

Above, Rio Claro Station, one of the most important on the line linking Jundiaí to the Northwest part of São Paulo State

Carlheinz Hahmann – Eduardo J. J. Coelho collection Above, Rio Claro Station, one of the most important on the line linking Jundiaí to the Northwest part of São Paulo StateCarlheinz Hahmann – Eduardo J. J. Coelho collection

In the 100 or so years in which trains were the principal form of transportation in Brazil, the country underwent rapid transformations. From 1854 until the middle of the last century, railroads connected regions that had previously been isolated, changed the faces of cities, expanded the coffee-based economy, contributed to industrialization and witnessed the founding of the first labor unions. Even so, the history of Brazilian railways was one of crises, says economist Guilherme Grandi, a professor in the Economics Department of the College of Economics, Administration and Accounting of the University of São Paulo (FEA-USP). The exception to this, in terms of efficiency, was the São Paulo Railway Company (Companhia Paulista de Estradas de Ferro).

One reason behind the continuous trials and tribulations of railway transportation in Brazil is the fact that since their inception, railways have required constant–but not always harmonious–interaction between private capital, both foreign and domestic, and the public sector. Few of these investments turned out to be profitable, and little by little the state and federal governments had to take control of the railways that were abandoned by private initiative. The market was also almost always subordinated to the fate of the products transported, such as coffee in São Paulo and rubber in the North, and for this reason, it depended on the fate of these other industries. These characteristics lead Ivanil Nunes, also an economist and postdoctoral researcher at FEA-USP, who studied this subject, to define the history of Brazilian railways as an “open-air laboratory to understand the relations between the State and the elites in Brazil.”

In the book Estado e capital ferroviário em São Paulo (The State and railway capital in São Paulo) (Alameda Editorial), which resulted from the doctoral research with the same title, conducted with support from the National Council for Scientific and Technological Development (CNPq), Grandi analyses the last private railway company in Brazil before the privatizations of the 1990s. The São Paulo Railway Company, founded in 1868, connected Jundiaí with cities such as Campinas and Rio Claro. This was a singular case of a successful railroad business, with operating surpluses, investment in worker training, publicly traded shares, takeovers of competitors, and a positive image in the public eye. Even so, the company succumbed to the socio-political changes that were taking place in a rapidly industrializing and urbanizing Brazil during the 1950s and 1960s. With the expansion of the railroads and the pressure placed on wages by the unions, the railway business began to become unfeasible. It was bought out by the São Paulo State government in 1961.

São Paulo Railway Company station yard in Campinas during the 1940s

1930s, Collection - São Paulo Railway Company Museum Map UNESP São Paulo Railway Company station yard in Campinas during the 1940s1930s, Collection - São Paulo Railway Company Museum Map UNESP

“In a sense, it can be said that this was the moment when the railroad age ended in Brazil, if we understand that it was when the national private sector completely left this market,” Grandi comments. It is easy to determine when the so-called “railway era” began: in 1854, with the inauguration of the first section of the railroad by the Baron of Mauá (businessman Irineu Evangelista de Sousa), which was 15 kilometers long and connected the Port of Mauá with the area called Fragoso, in the lowlands of Rio de Janeiro State. However, it is difficult to define when this era actually ended.

Expansion of the railway network ended in the 1940s; over the next two decades, state ownership progressively increased, and passenger transportation fell sharply during the 1980s. On the other hand, Ivanil Nunes notes, the total weight of the cargo transported by trains in Brazil did not fall, thanks to a streamlining process. It increased, while the network of tracks and administrative structures were downsized, going from 30 billion tons per useful kilometer (TKU, a measurement that corresponds to the transport of 1 useful ton–that is, minus all the weight that does not pertain to the merchandise–over a distance of 1 kilometer) in 1970 to 120 billion TKU in 1990. In the same period, cargo transported on highways went from 124 billion to 313 billion TKU. The Brazilian railway system was profitable at the time when the two major state-owned companies in this industry, the Rede Ferroviária Federal S/A [Federal Railway Network] (RFFSA, founded in 1957) and the Ferrovia Paulista S/A [São Paulo State Railway] (Fepasa, founded in 1971), were privatized and leased out to several companies, during the 1990s.

Ever since the pioneering initiative of the Baron of Mauá, in the 19th century, the expansion of the railroads was essentially done using private capital, both foreign (principally English) and domestic, and met the need for transport of agricultural products from an economy focused above all on exports. However, the presence of the State was very strong, principally through the so-called interest guarantee, under which businesses could be certain they would recover a certain margin of their capital, even if the investment turned out to be less profitable. Under this system, companies were supposed to reimburse the government for the extra money they received when business went well, but the only company that ever returned the difference in interest was the São Paulo Railway Company, in 1877.

Cargo train, typical of the 1930s

Rafael Prudente Corrêa collection Cargo train, typical of the 1930sRafael Prudente Corrêa collection

Coffee-growing elite
With connections to the agricultural product-exporting oligarchies, the railroads enjoyed considerable power of influence over the governments during the Empire and the First Republic (1889-1930). According to Grandi, the São Paulo Railway Company was particularly influential, above all in this period, directly dominated by the coffee elite, principally in the state of São Paulo. The loss of this influence, with the change in the power blocks over the course of the 20th century, was determinant in its fall. The coffee-growing elite to which the company was connected lost part of its power, taking with it the interests of the railroad. As a result, other problems came to the forefront, such as the fare structure, which placed excessive importance on the weight transported. Carrying bulky but lightweight merchandise, such as cotton, was not very profitable; the same was true for some required services, such as transportation of residential moves and mail.

Another difficulty faced by the Company came from labor relations. Employees of railroads run by neighboring state-owned companies, such as Sorocabana and Noroeste, received wages that were higher than those paid by the private company. In times of great social mobilization, a prolonged strike in 1961 revealed that the company’s finances were not as healthy as they had seemed. There were accumulated debts that compromised the positive operating numbers, which were constant until 1959, two years before the government takeover. The loss of the share held by railways in the Brazilian transportation matrix has many causes, including the growing importance of highway transport and the model for calculating rates. Passenger service was never profitable and was practically eliminated with the operational streamlining of the lines, principally during the period of the RFFSA and Fepasa.

The Target Plan of President Juscelino Kubitschek (1956-1961) is frequently cited as a factor that accelerated the highway model to the detriment of the railways. However, although researchers recognize the role played by Kubitschek, they also consider this attribution of responsibility to be exaggerated. “Several countries, even in Europe and in the United States, saw a reduction in their railroad networks, sometimes for the purpose of increasing profitability,” affirms historian Eduardo Romero de Oliveira, of the College of Tourism at the São Paulo State University (Unesp), experimental campus of Rosana. “Railroads that were built in the 19th century, when there was no other means of transportation available, became obsolete with the increase in new means of passenger transportation, such as automobiles and planes.”

In spite of the incentives for highway transportation from the 1950s to the 1970s, which included attracting multinational automakers, Oliveira believes that the position that incentives caused the decline of the railways “is a later assessment, made in the 1970s.” According to Grandi, in the National Traffic Systems, formulated during the 1930s and 1950s, railways gradually lost importance, but were always present. The conscious choice to emphasize highways is but one element among many in the transition of the Brazilian transportation model.

Book
GRANDI, G. Estado e capital ferroviário em São Paulo. São Paulo: Alameda, 2013, 326 p.

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