In 1879, the French Compagnie Universelle du Canal Interoceanique de Panama embarked on the project of cutting a canal through Panama to connect the Atlantic and Pacific oceans. This was a bold project but large canals had been built before and one crossing Egypt at Suez had already transformed the world a few years earlier. Further, the man in charge of this canal project was the same as had succeeded at Suez, Ferdinand de Lesseps. Unfortunately for Lesseps and many thousands of French investors, the project was an utter failure.
Certainly a candidate for the most famous canal-builder in history, Ferdinand de Lesseps, was already a notable figure before embarking on the Panama Canal project. He was a French diplomat turned businessman born in 1805. His foray into canal construction began after he befriended Sa’id Pasha, the khedive of Egypt, enabling him to secure a concession to build the Suez Canal. Lesseps organized a Suez canal company in 1858; work began on the canal in 1859 and the project was completed ten years later. The success in Egypt gave Lesseps international fame.
The completion of the Suez Canal in 1869 turned the world’s attention to the prospects of a new canal in Panama or Nicaragua to create a channel connecting the Atlantic and Pacific. The Société Civile Internationale du Canal Interocéanique de Darien was established in Paris to explore such a canal. In 1876, naval officer Lucien Napoléon Bonaparte-Wyse was dispatched to Panama to determine the potential for a canal there. He returned with a recommendation in favor of a canal with locks and tunnels, a recommendation rejected by Lesseps who completed a sea-level canal without locks in Egypt.
Wyse returned to Central America again the following year. In 1878, he received a concession from Colombia’s government, which then controlled Panama, to build a canal and operate it for ninety-nine years after completion. This time, he recommended a sea-level canal which Lesseps would favor.
In 1879, Ferdinand de Lesseps welcomed an international congress to Paris to plan the canal. Unsurprisingly, the congress concluded a sea-level canal at Panama would be ideal, just as Lesseps desired. A new company, the Compagnie Universelle du Canal Interoceanique de Panama, was established immediately after the conference’s conclusion to begin work on the project. Seventy-four-year-old Lesseps became the company’s president and the Compagnie Universelle acquired the concession held by Wyse.
The task of building the canal was judged to be a twelve-year undertaking. The cost of digging it and servicing the debt raised to fund the project in the meantime was put at 1.2 billion francs. An initial effort to raise money in 1879 failed with just 60,000 of the 800,000 shares offered being sold. The offering was cancelled and money returned. In response, Lesseps travelled to Panama and reduced his estimate of the total cost from 1.2 billion francs to ‘only’ 659 million. While there, he also turned the first shovel of dirt to officially launch the project.
Upon returning to France, with the assistance of a consortium of banks, some 600,000 shares of 500 francs each were offered in a second attempt. A 5% dividend during the construction phase was promised and shareholders would receive 80% of the net income of the completed canal thereafter. Lesseps and his fellow managers would receive the remaining 20%. These portions were of course with respect to the income net of the expenses of operating the canal and the revenue share which the Colombian government demanded in exchange for granting the concession. The offering received significant press attention and these shares sold readily. Some 100,000 people subscribed for over 1.2 million shares, twice the amount available, within just three days in 1880.
The design for a sea-level canal would have been forty-seven miles (seventy-five kilometers) long. It was laid out to avoid sharp curves and connected existing ports on either shore. This course would have followed an existing river, the Chagres, and its tributaries for parts of the route. The design involved excavation of an estimated 157 million cubic yards of earth at a now reduced estimated cost of 659 million francs.
This plan, at least with the budget available, turned out impossible to bring to fruition. A sea-level canal required deeper cuts through the ground in places and controlling the Chagres whose discharge could vary wildly proved difficult. It turned out that a canal with locks would have been the better plan. In any case, predictions that the project would fail rose seriously in 1885. Some believed that costs were actually running higher, and that the amounts of material being successfully excavated were lower, in reality than was reported.
Lesseps returned to Panama in 1886 to restore confidence in the project. By now, even he accepted that far more money would need to be spent to see the construction through to completion. Work under the sea-level plan continued until the following year. Then, realizing this would never succeed with the time and resources available, work on a new design including a system of locks was begun.
Unfortunately, by 1889, the Compagnie Universelle had run out of money and was unable to raise more. Only a bit less than half of the initial estimate of earth to be removed had been successfully excavated. It was at this stage far from completion that the canal company became bankrupt in February 1889 and all work was suspended that May.
A liquidator was appointed by the Department of the Seine to restructure the firm. He estimated the value of the work done thus far and the plant and equipment in place at 450 million francs. A further 900 million francs and eight years would be needed to finish the work and cover administration and finance charges in the meantime. This would have put the sum much closer to the initial projections.
By now, the investments of many were lost. The company was judged to be rife with corruption and various lawsuits were initiated by creditors. Politicians seized on the moment and the failure became a national scandal. The prosecution of the directors was demanded and Lesseps, his son Charles, and other managers were targeted and ultimately charged in connection with the failure of the company.
After a few years, a new company, the Nouvelle Compagnie Universelle, was organized in 1894 to finish the project. Lesseps died that same year. To fund part of the canal’s completion another 650,000 shares of 100 francs each were issued. Of these, 50,000 were given to the Colombian government in exchange for an extension of the concession to make up for the time lost. The rest were largely bought by those involved with the old company; the public syndication of this fundraising was quite small. Together with the old company, some 1.27 billion francs were raised but only by issuing securities with a face value of over 2.24 billion francs at a discount. Some 200,000 people were now invested in the project.
The Nouvelle Compagnie Universelle had offered to sell the canal project to the United States for $109 million or about 545 million francs but this offer was rejected. At that price, the Americans preferred to build a competing canal in Nicaragua. However, the French remained interested in selling.
In 1901, the company was permitted by the Colombian government to sell its concession to the United States and the project changed hands for just $40 million in 1902. This price, a huge discount to the money sunk on the project, would still be just a small fraction of the ultimate cost. The Americans encountered their own difficulties with the canal and the management of it had to be reorganized in 1905. There was even new wavering between reverting to a sea-level design or sticking with the revised French plan for a canal with locks. In any case, a canal with locks was successfully completed, but only in 1914.
Ferdinand de Lesseps was willing to present an optimistic plan for building a canal through Panama in order to secure funding for his vision. What might have been the innocent bright vision of a national hero embarking on a new project to the world’s benefit turned into an expensive and reputation-tarnishing disaster. There was perhaps no better man than Lesseps to lead such a project though; after all, this would be his second mammoth canal project. Wasn’t he the expert? Unfortunately, without sufficient scrutiny, there isn’t such a thing as an ‘expert’ and Lesseps’ estimates and plans were not put to sufficient testing before investors sent his Compagnie Universelle large sums of money.
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1. Johnson, Emory R. “The Panama Canal: The Title and Concession.” Political Science Quarterly, vol. 18, no. 2, June 1903, pp. 197–215.
2. “Lesseps, Ferdinand de.” Encyclopædia Britannica, vol. 16, 1911, pp. 494-496.
3. “The Land Divided, The World United: Building the Panama Canal.” The Linda Hall Library Exhibit, 29 Oct. 2014.
4. McCullough, David. Path between the Seas. Simon and Schuster, 1977.
5. “Panama Canal.” Encyclopædia Britannica, vol. 20, 1911, pp. 666–671.