Financial valuation methods in a world under political control: The Case of the Canal du Midi (1897 – 1901) Jean-Guy DEGOS Professor, University of Bordeaux (France) [email protected] Abstract The French canal du Midi, built by Pierre-Paul Riquet in the 17th century was the greatest construction project of its time. It enjoyed a natural monopoly and was protected because the other transport competitors were not able to challenge it for many years. The vagaries of three centuries of economic progress and political changes, associated with the considerable development of railway and road transport have limited its benefits. Revolutions and the French Republic weakened its position. Its owners were obliged to sell their property to the French State, because they were engaging in bad business and the government of the 19th century insisted control of all means of transport in the event of possible wars. Its sale resulted in contradictory analyzes that enable to take on the old techniques of evaluation of assets with very long operating timelines. It is also an interesting case of application of institutionalism and neo-institutionalism, which seek to explain the influence of the institutional environment - - here the State government, and French republican institutions – on the Organizations - here the Canal du Midi companies -. Keywords: Arbitration - Waterways - Railway – Contestable market - Natural monopoly – Neo Institutionalism - Methods of valuation - Perpetual annuity. 1 - Introduction The study of major projects in infrastructure is of interest to historians regarding business, finance and accounting for many reasons. Unlike in the battlefield, which highlights the affluent characters (kings, governments, marshals and generals) - and chronicles of the daily life, major projects can be the subject of multi-dimensional analysis and can acknowledge both the important characters and smaller players. Some major projects are of utmost interest, like space exploration or travel to the moon, but they are largely embroiled in the confidentiality of national defense agencies and departments. There are other major projects that exist that could be called as interesting but have the advantage of archives which are available to the public - the waterways are of this kind. For the French and international cases, the archives of the Suez Canal, the Panama Canal and the Canal du Midi are accessible to historians. We previously looked at these three channels, but we analyze in this article a one- off episode in the life of the Canal du Midi in the South of France1: the period between 1897 and 1901. Where its traditional owners, the founder's heirs, were forced to relinquish ownership of the canal for the benefit of the French State. This was the culmination of several factors that should be studied - and the ways in which it occurred it took place also deserves some attention. The Canal du Midi made an impact that was as much political as it was economical, which make it of international, as well as national interest. For a long time - in the tradition of the French (and European) monarchy, sovereigns and generals who represented they seized properties abruptly. Here, the Government has made the effort to establish arbitration and democratic devolution, which is more consistent with our modern life than the previous periods with the roughest devolution. The Canal du Midi has been the cause of much change in the economy of the South of France, and several authors mentioned its origin and early years of commercial exploitation (Andreossy, 1880; Tassot, 1912; Rolt, 1973; Mukerji, 2009; Chatillon, 2012). The channel has 328 architectural works, including 63 locks, 126 bridges, 55 aqueducts, 7 canal bridges, 6 dams, 1 outfall and 1 tunnel. In between 1897 and 1901 the pivotal change in status from having been privately owned to public waterway occurred. How did such a litigated transformation of a work of art that was 216 years old in 1897 and whose status derived from the old French law survive the French Revolution of 1789 and the revolutions of 1830 and 1848. This is what we will try to analyze, mobilizing the results of institutional theories (Weber, 1905, 1921), and neo-institutional (Scott & Meyer, 1983; Powell & DiMaggio, 1991). The acquisition of the Canal du Midi is a good example of process for organizations and bureaucracy to ensure their leadership on a specific economic activity. For this work, I have consulted the archives of the Canal du Midi in Toulouse, at the headquarters area of the public institution of Waterways, essentially, and from time to time the National Archives of the working world history (Mi Series 189, 78 AQ) in Roubaix, print archives from the National Library of France (François Mitterrand National Library, Paris) and many newspapers and magazines of this time. I have also consulted financial mathematics textbooks published at the time (French Encyclopedia of Diderot and d'Alembert, 1751-1772; Juvigny, 1840; Charlon, 1878; Labeyrie, 1878; Mary, 1890), which has often inspired courses in business schools, especially the Higher Commercial School in Paris (Hautes Etudes Commerciales). To gain a clearer insight we have identified some key dates for the Canal du Midi. 1 Under the reign of Louis XIV, King of France, the construction of the Canal du Midi, was estimated 18 million French pounds, equivalent 60 millions gold-francs. It was the second major project after the Château de Versailles. - 2 - Table 1 – Key dates for the Canal du Midi Date Event Political Head of Officer situation of State in charge of France the waterway June 29, 1609 Birth of Pierre-Paul Riquet, Bourbon Henri IV Duke of Sully designer of the Canal du Midi Monarchy King of France Chief minister November 15, Preparation of the construction Bourbon Louis XIV Jean-Baptiste 1662 plan by Pierre-Paul Riquet, 53 Monarchy King of France Colbert years old Intendant of the finances January 1st, Initial construction Bourbon Louis XIV Jean-Baptiste 1667 Monarchy King of France Colbert General comptroller of finances May 24, 1681 Opening of the Canal du Midi Bourbon Louis XIV Henri François Monarchy King of France d'Aguesseau Chancellor Year 1714 Management of the waterway by Bourbon Louis XIV Nicolas Jean-Mathias, eldest son of Monarchy King of France Desmarets Riquet (two thirds of the share) General and Pierre-Paul of Caraman, comptroller second son of Riquet, Lieutenant- of finances General of the Armies (one third of the share) Year 1789 First year of French Revolution. French Louis XVI Jacques Necker Thomas Jefferson, architect and Revolution and King of France General ambassador of the United-States Constitutional comptroller whishes to construct a similar Monarchy of finances channel to connect Potomac river and Lake Erie Year 1792 The heirs of P.P. Riquet French Revolutionary Leadership by emmigrate and the Government Revolution, national Girondins of the First Republic confiscate 1st Republic Convention Deputies the canal and two-thirds of the shares. The younger branch of the family retains its rights March 10, Creation of the Canal du Midi 1st Empire Napoléon 1er Martin Michel 1810 company by Napoleon 1st and Empereur Charles Gaudin allocation of shares Finance Minister July 8, 1852 Promulgation of Law granting the 2nd Republic Louis-Napoléon Pierre Magne concession of the Company of the Bonaparte Minister of Canal du Midi and the South President public works canal latéral à la Garonne for 99 years August 24, Concession agreement with 2nd Republic Louis-Napoléon Pierre Magne 1852 Pereire brothers, James de Bonaparte Minister of Rothschild and Adolphe Eichtal President public works - 3 - April 2, Opening of the railway 2nd Empire Napoléon III Noël Lefebvre- 1857 Bordeaux-Sète by the Company Emperor Duruflé of Railway of Midi Minister of public works May 29, 1858 Imperial decree granting 2nd Empire Napoléon III Noël Lefebvre- the Canal du Midi to the Emperor Duruflé Company of railway of Midi for Minister of 40 years public works November 27, Purchased by the State 3rd Republic Félix Faure Adolphe Turrel 1897 promulgation of the Law of Président Minister of November 27 public works Years 1920 Restoration of channel activity 3rd Republic Raymond Yves Le with the introduction of Poincaré Trocquer motorised barges President Minister of public works October 16, Devolution of Public office 4th Republic René Coty Auguste Pinton 1956 Waterways of France VNF President Secretary of State Décembre 7, Canal du Midi enters the world 5th Republic François Bernard Pons 1996 heritage of UNESCO Mitterrand, Minister for President Infrastructure Source : Author The imperial decree of 1858 (See above Table 1) had a negative influence on the archives of the Canal du Midi. Indeed, from that date, the Canal du Midi Company2 had left the management of the canal to its competitor: the Company of the Railways du Midi and of the Canal de Garonne. It was created in 1852, had completed construction of the Canal de Garonne started by the State in 1838 and had to build the railway line from Bordeaux to Sète and exploited both the railway and the canal. In a lease signed for 40 years, the archives of the Canal du Midi remained in the reserved area of the owning company. There was a breakdown in communication and for 40 years the documents were rarely archived where they ought to be but instead were stored in the Head Quarter's of the railway company, with some deposited at Roubaix Archives of Labor. The granting of the lease resulted in the loss of some of the documents but the core collection of documents produced until 1858 is fully preserved in Toulouse. We will now study the struggle between two natural monopolies and the ultimate success of the railway, as well as the objective of successive governments to ensure national security and control of all means of transport.