Networked Infrastructures in Portugal (1850-1920): Capital, Technology, and Skills Transfer

Abstract

Nineteenth-century Portugal was a poor country, suffering from deficiencies in capital supply and entrepreneurial initiative. At the same time, scientific and technological knowledge was also very deficient. The introduction of modern urban infrastructures (particularly in power and transport) and railways during the second half of the nineteenth century was a decisive challenge to a country lacking capital, technological and organizational resources. Access to the international financial markets as well as human capital became critical to the introduction of these network infrastructures in Portugal. The creation of foreign firms in these sectors internalized financial capital markets and technological capabilities. The internalisation of financial capital was not restrained to equity. In fact, the access to bond issues in sophisticated markets by these foreign firms operating in Portugal was even more important, because transaction costs would be exceptionally high for domestic entrepreneurs However, the competitive advantage of these foreign firms was not only financial. Mobilising technical and organisational capabilities was another source of competitive advantage over domestic projects. These foreign firms had access to a network of managers and technicians, sometimes with a previous career in railway construction or energy supply in other countries. The existence of clusters of financiers, managers and technicians operating in different firms across Europe is a characteristic peculiar to these network infrastructures. This paper will focus on two case studies: power supply and railway construction in Portugal from 1850 to 1920. It tries to identify the importance of foreign capital (direct investment and portfolio, equity and bonds) in financing these entrepreneurial initiatives. The importance of foreign capital in these firms, the geographic distance between the sources of this capital and the location of operations introduce problems of agency, a well-known problem in organizational studies (Jensen, 1998). Finally, the paper also addresses the circulation of managers and technicians as an important characteristic of these firms, contributing to the circulation of knowledge and skills.