Global Electrification: Multinational Enterprise and International Finance in the History of Light and Power, 1878-2007

Published by EH.NET (May 2010)

William J. Hausman, Peter Hertner, and Mira Wilkins, Global Electrification: Multinational Enterprise and International Finance in the History of Light and Power, 1878-2007. New York: Cambridge University Press, 2008. xxiv + 487 pp. $80 (hardcover), ISBN: 978-0-521-88035-0.

Reviewed for EH.NET by Michael Edelstein, Department of Economics, Queens College and the Graduate School, City University of New York.

Any large power outage at home and work for even a day makes it clear that electrical energy is essential for modern life. Prior histories of the appearance and diffusion of electrical energy have emphasized the technology, the leadership role of an entrepreneur or a financier, the role of an enterprise, or one nation?s experience. There are a few excellent volumes that compare the development of the industry in several countries, typically the first nations to electrify. This volume studies the intersecting roles of multi-national enterprise and international finance in the globalization of electrical light and power. On a time scale, the story runs from 1878 to 1914 in its first era when private firms and finance dominated, to the second era from 1914 to the 1970s when ownership became more and more domesticated, and national or regional governments took a larger ownership role and, finally, to the more recent era from the late 1970s to the present, characterized by privatization and re-emerging multinational ownership patterns. Given the objective of telling a comprehensive global story, it is not surprising that this volume has three authors with considerable background in the economics, finance, and multi-national enterprise of electrical power and draws significant advice and contributions from Dominque Barjot, Jonathan Coopersmith, Kenneth E. Jackson, Pierre Lanthier, H. V. Nelles, John L. Neufeld, Harm Schrotter, and Luciano Segreto.

What is most remarkable is the singular authoritative voice of the text, even as first authorship shifts between Hausman (Chapters. 1 and 7) and Wilkins (Chapters 2 to 6), with most chapters employing several other authors and advisor-contributors. And yet, the middle five chapters could not have been conceived and researched by anyone other than Mira Wilkins. The pre-eminent historian of American international investment and multinational enterprise, Wilkins combines exhaustive research into business archives and contemporary sources with a gift for quickly weaving the life of a company or entrepreneur into a rigorous narrative of multiple and interacting firms.

In an excellent first chapter, Hausman et al first lay out the pattern of technical innovation, emphasizing its multinational sources and the high degree to which invention responded to the possibilities and challenges of powerful generators and grid distribution. The accompanying tables do a superb job capturing the global diffusion of the industry in its first century. In the second part of this chapter, Hausman et al lay out the special economics of the evolving electrical technologies, emphasizing the massive amounts of capital that had to be raised before a single watt could be transmitted to factories, homes or a city. As urban places began to be lit and powered by multiple and large generators, the pattern was set of small marginal costs and an overwhelming portion of total costs absorbed by a power company?s fixed financing costs. Consequently, nearly all electrical generation and transmission fell into monopoly patterns. Furthermore, between the need to acquire rights of way for the large network of power lines linked to tens and hundreds of thousands of customers and the threat of monopoly pricing, electrical power industry development was, from its earliest stages, both an economic and a heavily political story.

One of the most original contributions of the volume is a table which provides an estimate of the share of foreign ownership in electrical utilities for every country in the world, 1913-14, 1928-32, 1947-50, and 1970-72. The eighteen pages of footnotes require an appendix of their own. This is global quantitative history of the highest usefulness and provides a major anchor for the narrative history found in Chapters 3 to 7. The table gives a strikingly representation of the employment of foreign capital and, just as important, the absence of foreign capital. The table measures foreign ownership vs. domestication (private and public). At the end of the first era of electrification, 1913-14, if foreign ownership was less than 20%, it was very likely the nation or colony had already shown a pattern of significant modern economic growth when electrification started in 1878. A few colonies had no foreign ownership in 1913-14 but their utilities were largely owned by their colonial government. The only country which began significant modern economic growth after 1878 with no foreign utility ownership was Japan. Across World War I and the 1920s, there was a mixed pattern, a small tendency in South and Central America to increase foreign ownership but there were also striking reversals of foreign ownership in revolutionary Russia and Turkey. Across the Great Depression and World War II, Europe and Asia moved decisively to total domestication with only Greece, Morocco and the Philippines as exceptions. In the next period after World War II, observed in 1970-72, the domestication pattern reached South and Central America and the Caribbean.

The pattern of domestication over time and nations is one of the big stories of this volume. The authors find a number of trends which took the industry in this direction; perhaps the most important was the growing awareness that like water supplies, electricity had become essential for daily living and national security. Furthermore, as the technology matured, the need for foreign management, capital, and technology seemed less important than the pride and promise of local control. A small cadre of electrical engineers educated abroad or at home could do the few hard jobs. A small quibble with the authors might be over the strong learning effects of wartime isolation. The authors note a role for the world wars but to this reviewer the dramatic rise in public management and control during World War I and even more during World War II surely supplied experience and an ethos for the post-war trends towards utility domestication, both in the warring nations and those neutrals cut off from their foreign owners.

The other striking aspect of Hausman et al?s story is the diversity of the business organizations created by the electrical sector?s international capitalists and entrepreneurs. The second chapter acquaints us with the types of organization which Wilkins has identified in her previous work and which Wilkins et al have improved with this new foray into electrical utilities. Yet, this excellent survey provides only a rough map for the variety of company formations which the authors later analyze in Chapters 3 to 6. One of the few discernible rough patterns is the tendency for international investors to use holding companies in order to gain control, transfer technology, and increase leverage and profit, especially as large regional and national grids appeared as a possibility. But, the variety of holding company formations is simply baffling. Clearly there were many ways to skin the cat but it is also the case that the sheer murkiness of these holding companies made them good targets for politicians who worried about monopoly pricing and national security.

This is a very fine history of multinational enterprise and finance. Economic, business and international historians interested in the last century will find much new information and rigorous analysis of electrification in its most correct, global setting.

Michael Edelstein?s recent publications include “The Production of Engineers in New York Colleges and Universities, 1800-1950: Some New Data,” in David Eltis, Frank D. Lewis, and Kenneth L. Sokoloff, editors, Human Capital and Institutions: A Long-Run View. New York: Cambridge University Press, 2009.