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Global Electrification


Electricity is essential. This book examines how multinational enterprises
and international ¬nance in¬‚uenced the course of electri¬cation around
the world. Multinational enterprises played a crucial role in the spread of
electric light and power from the 1870s through the ¬rst three decades of
the twentieth century. But their role did not persist, as over time they
exited through ˜˜domestication™™ (buy-outs, con¬scations, or other with-
drawals), so that by 1978 multinational enterprises in this sector had all
but disappeared, replaced by electric utility providers with national
business structures. Yet, in recent years, there has been a vigorous revival.
This book, a unique cooperative effort by the three authors and a group of
experts from many countries, offers a fresh analysis of the history of
multinational enterprise, taking an integrative approach, not simply
comparing national electri¬cation experiences, but supplying a truly
global account.

William J. Hausman is Chancellor Professor of Economics at the
College of William & Mary. He was president of the Business History
Conference, 2006“2007. Hausman has written extensively on the
history of the U.S. electric utility industry.

Peter Hertner has just retired as Professor of Economic and Social
History at the Historical Institute, Martin-Luther-University of
Halle-Wittenberg. He returns to the European University Institute,
Florence, Italy. Hertner is an expert on the history of German foreign
investments, particularly in the electrical industry and banking.

Mira Wilkins is Professor of Economics at Florida International
University. She is a former president of the Business History Con-
ference and in 2004 was given the Lifetime Achievement Award by
that organization. Her expertise and publications are on the history
of multinational enterprise and the history of foreign investments.
Cambridge Studies in the Emergence
of Global Enterprise

Editors

Louis Galambos, The Johns Hopkins University
Geoffrey Jones, Harvard Business School


Other books in the series:

National Cultures and International Competition: The Experience of
Schering AG, 1851“1950, by Christopher Kobrak, ESCP-EAP, European
School of Management
Knowledge and Competitive Advantage: The Coevolution of Firms, Tech-
nology, and National Institutions, by Johann Peter Murmann, Australian
Graduate School of Management
The World™s Newest Profession: Management Consulting in the Twentieth
Century, by Christopher D. McKenna, Said Business School, University of
Oxford
Global Brands: The Evolution of Multinationals in Alcoholic Beverages, by
Teresa da Silva Lopes, Queen Mary, University of London
Banking on Global Markets: Deutsche Bank and the United States, 1870 to
the Present, by Christopher Kobrak, ESCP-EAP, European School of
Management
British Business in the Formative Years of European Integration, 1945“1973,
by Neil Rollings, University of Glasgow
Global Electrification
Multinational Enterprise and International
Finance in the History of Light and Power,
1878“2007




WILLIAM J. HAUSMAN
Chancellor Professor of Economics, College of William & Mary,
Williamsburg, Virginia, United States

PETER HERTNER
Professor of Economic and Social History, Historical Institute,
Martin-Luther-University of Halle-Wittenberg, Germany

MIRA WILKINS
Professor of Economics, Florida International University,
Miami, Florida, United States
CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521880350

© William J. Hausman, Peter Hertner, Mira Wilkins 2008


This publication is in copyright. Subject to statutory exception and to the provision of
relevant collective licensing agreements, no reproduction of any part may take place
without the written permission of Cambridge University Press.
First published in print format 2008


ISBN-13 978-0-511-39829-2 eBook (EBL)

ISBN-13 978-0-521-88035-0 hardback




Cambridge University Press has no responsibility for the persistence or accuracy of urls
for external or third-party internet websites referred to in this publication, and does not
guarantee that any content on such websites is, or will remain, accurate or appropriate.
Contents




Tables and Illustrations page ix
Series Editors™ Preface xi
Preface xiii
Acknowledgments xxi
Authors and Contributors xxiii

PART I CONCEPTS

The Invention and Spread of Electric Utilities, with
1
a Measure of the Extent of Foreign Ownership 3
Multinational Enterprise and International Finance
2 35
PART II CHANGES

Every City, 1880“1914
3 75
War, the First Nationalization, Restructuring, and Renewal,
4
1914“1929 125
Basic Infrastructure, 1929“1945
5 190

PART III CONCLUSIONS

Summary of the Domestication Pattern to 1978
6 233
Coming Full Circle, 1978“2007, and a Global Perspective
7 262

Appendix A: Abbreviations, Acronyms, Company Names,
and Variations on Company Names 277




vii
Contents
viii

Appendix B: Notes to Table 1.4 Foreign
Ownership of Electric Utilities, Four Periods 291
Notes 309
Select Bibliography 439
Index 461
Tables and Illustrations




tables
1.1. The 25 Highest-Voltage Transmission Systems
Outside the United States, 1914 page 20
1.2. Per Capita Electricity Production Growth Rates,
Selected Countries, 1900“1985 26
1.3. Industrial Electricity, Selected Countries, 1933 28
1.4. Foreign Ownership of Electric Utilities, Four Periods:
Percent of a Country™s Capacity, Output, or Assets of
Electric Utilities Owned and Controlled by Foreign
Firms, 1913“1914, 1928“1932, 1947“1950, 1970“1972 31
3.1. Partial List of British-Organized or -Controlled
Electric Light and Power Companies (Including
Electric Tramway Companies) with Properties Located
Outside the United Kingdom, United States, Canada,
Latin America, and the Caribbean, 1915 106
4.1. The Nominal Amount of British Capital Invested
Abroad in the Electric Light and Power Sector,
Dividends and Interest Paid, Percentage Return on
Share and Loan Capital, 1929 156
4.2. Some Securities of ˜˜Foreign™™ Electric Light and
Power Companies Outstanding in the U.S.
Market, 1925 173
5.1. The Assets of Electric Utilities with Investments
Abroad, 1937 218
6.1. The ˜˜Domestication Process™™ of Electric Utilities
in Selected Countries 253



ix
Tables and Illustrations
x

¬gures
1.1. Per Capita Consumption of Electricity, Selected
Countries, 2001 5
1.2. Percent of Households with Electricity, Selected
Countries, 1984 6
1.3. Diagram Showing an Example of Long-Distance
Electric Power Transmission and Distribution, 1895 16
1.4. Capital/Output Ratio for U.S. Utilities, Transportation,
and Manufacturing, 1880“1950 22
1.5. Per Capita Output of Electricity, Selected Countries,
1900“1985 25
1.6. Percent of Population in Areas Supplied with
Electricity, 1933 28
4.1. Dannie Heineman (1872“1962) 152
4.2. S. Z. Mitchell (1862“1944) 183


maps
5.1. The Project Heineman-Oliven 194
5.2. American & Foreign Power Operations, 1939 220
Series Editors™ Preface




The availability of electricity is largely taken for granted in industrialized
countries, and yet as the authors of this path-breaking study emphasize,
the dissemination of electric power over the last century was a massive
endeavor. The distribution of electricity was, the authors show, a global
project. We see the enormous importance of global ¬rms, in a wide variety
of corporate forms, in electri¬cation before 1914 and after; yet at the same
time, a countervailing force mounted, that is, the reduction of the role of
these global ¬rms, as governments assumed the responsibility for providing
electricity; and then the reemergence in the contemporary era of global
businesses as major forces in the world industry. In this and other regards,
the spread of electric utilities tells us much about the larger patterns of
evolution of the world economy through the vast changes that have
occurred as countries industrialized and then moved into the information
age. The authors have done research in historical archives located all over
the world and in dozens of languages. They have demonstrated a mastery of
many different historical literatures. The book points to a new style of
˜˜global business history™™ where the linkages between national experiences
are mapped out to become a central explanatory theme, and where national
experiences are compared and contrasted rigorously. In short, the authors
have created the ultimate work of reference on the electri¬cation of our
world.

Geoffrey Jones
Harvard Business School

Louis Galambos
The Johns Hopkins University




xi
Preface




This book is a cooperative effort by three authors “ William J. Hausman,
Peter Hertner, and Mira Wilkins “ and Dominique Barjot, Jonathan
Coopersmith, Kenneth E. Jackson, Pierre Lanthier, H. V. Nelles, John L.
Neufeld, Harm Schroter, and Luciano Segreto. It attempts to understand
¨
how electric light and power facilities were established and how multina-
tional enterprise and international ¬nance have in¬‚uenced the course of
electri¬cation around the globe. The three authors took the initiative in
developing the project. Although electri¬cation is basic to our daily lives,
we were convinced that the international business and ¬nancial dimensions
of its history had been underestimated. The authors assembled a superb
group of experts, who have contributed much time and good advice. We
were prompted by several considerations:

1. Although there was a huge literature on the spread of global
electri¬cation and on the manufacturing companies (the industrial
¬rms), no one had dealt systematically with the history of
multinational enterprise and ¬nance in driving forward the lighting
up of the world and in providing electric power. Thus, there was a
gap to be ¬lled. We wanted to write about the supply of electric light
and power, about the utilities.
2. New emphasis on markets “ liberalization, privatization, and
restructuring from the late 1970s and particularly the 1980s onward “
brought with it a resurgence of multinational-enterprise involvements
in public utilities and a new globalization. We wanted to study the
past in the context of the present because there were obviously
historical precedents for today™s activities.
3. For one of us (Wilkins), the only nonspecialist on electri¬cation, there
was an additional challenge. Wilkins had long been interested in the
history of multinational enterprise and in its relationships to
international ¬nance. She had been considering forms and conduits

xiii
Preface
xiv

in international transactions “ that is, the actors involved in
undertaking foreign investments. The history of electric utilities
and their global spread would be a splendid testing ground. All the
other participants in this project had written extensively on various
cross-border as well as domestic aspects of electric public utilities.
Wilkins was in the enviable position of being surrounded by
knowledgeable individuals.
4. For all the other participants, this project gave new perspectives.
Each was a specialist on particular countries and regions and on
particular international connections. Each knew very well a part of
the story. What our project offered was a global view. Our group
asked, What is distinctive about individual countries and regions and
cross-border transactions? What are the legitimate generalizations?
What are the common features? How do we think in international
rather than conventional national terms? To what extent was
information about, and the installation of, electric light and power
facilities actually diffused through multinational enterprise and
international ¬nance? We looked at change through time. There
was nothing static in our approach. And even though we were asking
questions relevant to the present, we all understood that history must
be approached from evidence, that looking back from the present can
distort.

While members of our group come from economics and history
departments, we shared the strong belief that good theory must be based on
evidence. This is a study based on what happened, as best we can recon-
struct it.
The project had its genesis in the early 1990s. Activities on it accelerated
after Hausman, Hertner, and Wilkins received approval in May 1999 for a
session at the International Economic History Congress (IEHC) in Buenos
Aires. At the Business History Conference meetings in Palo Alto, California,
in March 2000, Hausman, Hertner, and Wilkins mapped out the plans.
Four formal sessions followed: The group had a ˜˜pre-IEHC™™ meeting in
Wittenberg, Germany, in May 2001, hosted by Hertner; met in Buenos
Aires in June“July 2002 at the IEHC; gathered in Paris in May 2003 as
´
guests of Electricite de France (EDF), with arrangements by Barjot and
´
Hertner; and convened in Lowell, Massachusetts, in June 2003 at a panel
organized by Hausman at the Business History Conference. The three
authors and Nelles attended all four of these group meetings (and also
subsets of them); others attended one, two, or three of the sessions. We have
all been in e-mail contact with each other.
It became apparent in our research on global electri¬cation patterns that
we would have to pay close attention to technological change and that we
would also have to look carefully at the critical roles of governmental
Preface xv

bodies, as the roles of the latter evolved over the years. We would have to
explore the economic and political as well as the business and banking
history literature. Multinational enterprise and international ¬nance had to
be put into a broad context. We realized that we were making a contri-
bution to modern international economic history. We decided to con¬ne
our principal research to the ¬rst round of private investors™ international
participation, from 1878 to 1978. The last chapter brings the story up to
date and explains how relevant the topic is in the early twenty-¬rst century.
We found that the story of multinational enterprise and international
¬nance was not peripheral but was basic to an understanding of the spread
of electri¬cation around the world. Our topic was, in fact, extremely
important.
Our initial chapter sets the stage for our ¬ndings. It examines the sig-
ni¬cance of electricity in the modern world, provides some quantitative
measures of its spread and extent, and makes the point that a sizable
number of households in the less-developed world today still do not have
access to electricity. It offers a brief technological survey of electric lighting,
power, and traction, emphasizing the importance of large networks and the
role of hydroelectricity. The chapter offers evidence on the extraordinary
capital intensity of the industry, explores the economic implications of this
capital intensity, and demonstrates how crucial this is to our study of
multinational enterprise and ¬nance. The chapter also contains a succinct
commentary on the role of governments (municipal, state, provincial, and
national) in facilitating, regulating, and owning light and power companies.
We argue that a governmental role is inherent because of certain funda-
mental characteristics of the electric utilities sector. Finally, in this frame-
work chapter, we provide our de¬nition of foreign ownership and control
and present a basic, newly developed table containing estimates of the
percentage of a country™s capacity, output, or assets owned or controlled by
foreign ¬rms, by country, for benchmark years. This table lies at the heart
of our study, revealing how signi¬cant foreign ownership and control was
to the early history of global electri¬cation.
Chapter 2 treats multinational enterprise and international ¬nance. It is
designed to establish a foundation for analysis. It introduces the reader to
existing thinking about multinational enterprise and juxtaposes earlier
research with the forms and practices we uncovered in our empirical work
on the history of global electri¬cation. Because of the capital intensity of
electric utilities (as shown in Chapter 1), ¬nance was fundamental.
Accordingly, we have sought to understand the interrelationships between
multinational enterprise and international ¬nance, the networks and clus-
ters of ¬rms, and the ever-present minority interests. We have found par-
ticularly useful the new writings on corporate governance and have tried
to integrate others™ insights with our own discoveries. For many years, but
no longer, theories and descriptions of multinational enterprise were
Preface
xvi

dominated by considerations of manufacturing ¬rms; our story is about a
service: the supply of electric light and power. To include the latter is
perfectly consistent with the newer research on multinational enterprise.
Our surprise ¬nding was, however, that although multinational enterprises
were ubiquitous in the history of the spread of global electri¬cation, it is
inappropriate, for the ¬rst century of the industry™s existence, 1878“1978,
to write on ˜˜electric public utility multinational enterprises.™™ With rare
exceptions, operating electric public utilities in these years did not extend
internationally. Instead, a variety of forms of multinational enterprise
participated in the diffusion of global electri¬cation. This chapter maps the
economic actors participating in the process of providing light and power
around the world. We explain the differences between foreign portfolio and
direct investment. Although the material is often abstract, it should offer a
guide to the understanding of the complicated story that follows in the
subsequent chapters. Hopefully, this chapter (as well as the documentation
of the abstractions in what follows) will contribute not only to our
knowledge of how the spread of electri¬cation occurred, but also to the
literature on the history of multinational enterprise.
The next three chapters take the concepts put forth in the ¬rst two and
show chronologically, in considerable detail, the dramatic changes as they
transpired over time. Chapter 3 deals with the ¬rst movers, the new forms
of outward and inward investments that emerged as central power plants
proliferated. It documents the spread of the facilities and the extent and
characteristics of foreign ownership and control, along with the role of
¬nancial intermediaries. By 1914, when Chapter 3 ends, residents of every
city around the world had some kind of access to (familiarity with)
electricity “ whether on a tram, a street corner, possibly at work, or, less
likely, at home. This chapter reveals the beginnings of the rise of complex
interactions between European and North American capital and entre-
preneurship “ as inhabitants the world over slowly became aware of the
diffusion of electri¬cation. The great creditor nation is the United Kingdom,
and its businesses™ role in the spread of electri¬cation is weighed vis- a-vis
`
those of many other key actors: American, Belgian, Canadian, French,
German, and Swiss, for example. Electri¬cation was piecemeal on all
continents and often the result of multinational enterprise expansion. Our
interest is in the process of global diffusion, so what happened in colonies
and dominions as well as independent nations is included.
Chapter 4 moves the story through time from 1914, when Germans were
major players and Russian electri¬cation was dominated by foreign capital,
to 1929, when after war, nationalization, restructuring, and renewal there
emerged a different con¬guration of foreign ownership and control and of
international ¬nance, assisting in the development of electri¬cation. Con-
tinuities and discontinuities are evident. World War I, however, had a
dramatic impact by focusing new attention on electri¬cation needs, in
Preface xvii

stimulating new government interventions, and in transforming the already
important activities of Belgian and Swiss holding companies. The collapse
of the Austro-Hungarian, German, Ottoman, and Russian empires and the
forming of new nations affected the electri¬cation mosaic. After World
War I, U.S. companies (and U.S. ¬nance) took on a newly heightened role.
In the 1920s, no sector attracted greater outward foreign direct investments
from the United States than that of utilities. This chapter covers system
building as well as the spread of enclave type and power-hungry industrial
investments. Foreign direct investment “ accompanied by international
¬nance “ facilitated the vast extension in the global accessibility of electric
light and power. Yet, coincidentally, there was a layering process with the
emergence of domestic control in certain countries (thus, for example,
nationalization in Russia closed that country to foreign direct investors in
electric utilities). The forms of and role of multinational enterprise became
extremely complicated, with overlapping international business groups
crisscrossing national frontiers.
Chapter 5 turns to the period between 1929 and 1945, when the tem-
porary momentum of multinational enterprise in global electri¬cation was
undermined by the worldwide depression, foreign exchange controls,
inconvertible currencies, and then World War II. The global electri¬cation
of the 1920s with the widespread participation of multinational enterprise
carried over to 1930, with ambitious plans for a uni¬ed Europe, united with
an electric grid developed by multinational enterprise initiatives. Alas, the
dream was shattered. The years surveyed in this chapter saw unprecedented
risks, uncertainties, and con¬‚icts facing international private-sector inves-
tors. Although the demand for electric light and power rose, these foreign
investors became less able to ful¬ll the requirements. Some multinational
enterprises retired from existing international commitments. On the other
hand, there were also some new, purely ¬nancial investments (with par-
ticularly large ones in the United States), but not foreign direct investments.
For multinational enterprises, which during the 1930s encountered blocked
remittances and enlarged governmental interventions (from rate regulations
to renegotiated contracts to new legislation), there was little incentive or
capability to meet rising expectations. Everywhere, the public and gov-
ernments recognized that electricity was part of the basic infrastructure.
National grids emerged with all the attendant costs. More often than in
prior years, there were new government-run activities. And then World
War II turned attention to national wartime requirements. The large mul-
tinational enterprises persisted and responded in various ways, but there
was a nearly complete absence of new entries into international business.
Chapters 6 and 7 pull the previously presented material together, pro-
viding conclusions. Chapter 6 is in two parts. It starts with the years 1945
to 1978, when private-sector multinational enterprises were still present “
and in some cases even enhanced “ yet the handwriting was on the wall, and
Preface
xviii

what we have called the ˜˜domestication process™™ (domestic rather than
foreign direct investment) picked up speed. The second half of the chapter
puts the entire history in perspective, summarizing the domestication pro-
cess from 1878 to 1978. The rationale for these two sections within
Chapter 6 lies in the fact that while there was some new private-sector
international investment after World War II, the scenario was increasingly
one of an expanded governmental role in the provision of electric power “
and if it was not governmental everywhere, there were national (rather than
private-sector international) activities in this sector. Our ¬ndings are that
early in the process of electri¬cation, international private-sector involve-
ments were “ or if not initially, soon became “ fundamental. Over the years,
in a highly uneven manner, there was greater domestication. In some
countries, there was more inward international involvement in 1929“1930
than in the decades before World War I. By 1945, however, when Chapter 5
ends, this ¬rst wave of multinational-enterprise participation had already
begun to show clear signs of dissipating. With the new postwar multilateral
¬nancing sources, with the newly enlarged national governmental roles,
foreign private-sector activities in electric light and power were dwarfed.
On an overall basis, they were increasingly reduced in absolute as well as
relative terms. Multinational enterprises continued in this sector; there was
private ¬nance, but it had become a shadow of times past. And, at an ever
more rapid pace after World War II, in country after country, multinational
enterprises in this sector exited. As decolonization brought forth new
nations, the latter did not desire foreign private control over the provision
of light and power. To be sure, after 1945 there were some few instances of
surges of new multinational enterprise-type investments, as in the case of
American & Foreign Power Co. in Cuba, which later encountered expro-
priation with the advent of Fidel Castro. Thus, Chapter 6 contains, along
with its summary of the entire domestication process, the story of 1945 to
1978, since by then the trend toward domestication was well under way.
For reasons that we subject to analysis over the decades throughout the
world, what was once ˜˜foreign-owned and -controlled™™ became domestic,
often “ but far from always “ government-owned. Part of this process of
domestication involved nationalization, and part was caused by ˜˜creeping™™
expropriation, where foreign ¬rms found operations untenable. Through-
out, private foreign ¬nance persisted, but in the post“World War II years it,
too, was muf¬‚ed. By 1978“1979, when Brascan moved from Canadian
to Brazilian ownership, the last of the long-standing, once-large array of
foreign-owned and -controlled ¬rms became domestic. The private sector in
terms of foreign ownership and control was for all practical purposes out of
the picture. What was once a truly internationalized private sector became
domestic, with only a few remnants of the past remaining. Authors wrote of
the ˜˜old™™ foreign investments in public utilities.
Preface xix

Yet, as soon as the notion of ˜˜old investments of another era™™ was well
accepted, privatization, restructuring, and reliance on the market began to
become the ˜˜talk of the town,™™ which was especially true by the 1980s
and during the 1990s. By the 1990s, there was a dramatic resurgence
of international direct investments in the electric utilities sector. New
multinational-enterprise investments in electric utilities in that decade and
in the early twenty-¬rst century multiplied in both developed and less
developed countries. Clusters, networks, alliances, and business groups
´`
reemerged. The writers of this history had a certain sense of deja vu. At the
same time “ by the end of the 1990s and in the early twenty-¬rst century “
some of the new international investors were encountering dif¬culties. We
think our story could have predicted some of the problems. A short Chapter
7 reviews some of the new multinational-enterprise involvements of the last
decades and considers some of the lessons that emerge from the historical
experiences. This is followed by a short conclusion.
To understand the lessons learned, we will discuss populist sentiments as
well as con¬‚icts between private goals and public needs and the clash
between openness and state intervention. We deal with the special dif¬-
culties business enterprises face in investing in electric utilities in a world of
¬‚uctuating currencies. Our overall goal is a new narrative and analysis. The
outcome is a unique and previously untold story that is fundamental to the
economic history of the modern world.
Acknowledgments




This is not an edited volume of essays. Instead, it is an integrated study, the
result of the close interactions between and among the participants.
William Hausman wrote Chapters 1 and 7; Mira Wilkins wrote Chapters 2
through 6; and throughout, Peter Hertner made vital contributions. Note
that the ¬rst page of each chapter cites in a footnote the main authors and
other contributors to the chapter. The phrase ˜˜Signi¬cant advice from . . . ™™
acknowledges special contributions to the chapter.
In addition to the bountiful and splendid assistance of our core group (listed
at the beginning of the preface and in the roster that follows), authors
Hausman, Hertner, and Wilkins want to thank individuals from around the
world “ from North and South America, Europe, Asia, Oceania, and Africa “
for the rich contributions that they so generously provided: Robert Aliber,
Franco Amatori, Francesca Antolin, Christopher Armstrong, Anna Maria
Aubanell-Jubany, Ann Booth, Lisa Bud-Frierman, Bernard Carlson, Alfred
Chandler, Andrea Colli, Theresa Collins, John Dunning, Abdel Aziz Ezzel
Arab, Maryna Fraser, Patrick Fridenson, Pankaj Gemawat, Andrew Godley,
Leo Goodstadt, Peter Gray, Leslie Hannah, Jean-Francois Hennart, Dina
¸
Khalifa Hussein, Paul Israel, Charlotte Jackson, Geoffrey Jones, Stuart Jones,
Joost Jonker, Takeo Kikkawa, Makoto Kishida, Christopher Kobrak, Stephen
Kobrin, Ginette Kurgan-Van Hentenryk, Pamela Laird, Norma Lanciotti,
Daniel Lecuona, Donald Lessard, Reinhold Liehr, Kenneth Lipartito, Robert
Lipsey, Andrea Lluch, David Merrett, Rory Miller, Yumiko Morii, Ulf Olsson,
Nikos Pantelakis, Ioanna Pepelasis Minoglou, Anders Perlinge, Francesca Pino,
Francesca Polese, Samir Saul, Dieter Schott, Jonathan Schrag, Keetie Sluyter-
man, Richard Sylla, Robert Tignor, Gabriel Tortella, Teresa Tortella,
G. P. J. Verbong, Kazuo Wada, and Bernard Yeung. Hausman would like to
thank Alan Zoellner, government documents librarian at William & Mary, and
Debbie Green, Sarah Stafford, Beth Freeborn, Will Armstrong, and Michael
Blum for their gracious technical assistance. This book would not have been
possible without the help of all these talented men and women.

xxi
Authors and Contributors




William J. Hausman
Chancellor Professor of Economics
College of William & Mary
Williamsburg, Virginia
United States

Peter Hertner
Professor of Economic and Social History
Historical Institute
Martin-Luther-University of Halle-Wittenberg
Germany

Mira Wilkins
Professor of Economics
Florida International University
Miami, Florida
United States

Dominique Barjot
Professor of Economic History
University of Paris-Sorbonne
Paris
France

Jonathan Coopersmith
Associate Professor of History
Texas A&M University
College Station, Texas
United States



xxiii
Authors and Contributors
xxiv

Kenneth E. Jackson
Associate Professor and Director
Centre for Development Studies
University of Auckland
Auckland
New Zealand

Pierre Lanthier
Professor
Department of Human Sciences/CIEQ
University of Quebec at Trois-Rivieres
`
Quebec
Canada

H. V. Nelles
L. R. Wilson Professor of Canadian History
McMaster University
Hamilton
Ontario
Canada

John L. Neufeld
Professor of Economics
University of North Carolina
Greensboro, North Carolina
United States

Harm Schroter
¨
Professor of History
University of Bergen
Bergen
Norway

Luciano Segreto
Professor of Economic History and the History
of International Economic Relations
University of Florence
Florence
Italy
part i

CONCEPTS
1

The Invention and Spread of Electric Utilities, with
a Measure of the Extent of Foreign Ownership




Electricity is essential, but it was not always so. The vast bene¬ts, as well as
dependency, electricity has brought to the contemporary world are never
more dramatically demonstrated than when a blackout occurs. In eco-
nomically developed countries, even brief blackouts cause severe inconve-
nience, and extended blackouts can impose huge economic costs and even
lead to breakdowns in civil order. In less developed countries, blackouts
tend to be chronic, inhibiting economic growth and social progress.1 Two
massive blackouts, each affecting over 50 million people, occurred in
August and September of 2003, one engul¬ng the midwestern and north-
eastern United States and part of eastern Canada, the other affecting most
of Italy “ the largest blackout in Europe since World War II.2 These
blackouts demonstrated both the importance of electricity and the imper-
fection of the industry that delivers it. As the ¬nal report of the task force
investigating the U.S.-Canada failure noted, ˜˜Modern society has come to
depend on reliable electricity as an essential resource for national security;
health and welfare; communications; ¬nance; transportation; food and
water supply; heating, cooling, and lighting; computers and electronics;
commercial enterprise; and even entertainment and leisure “ in short, nearly
all aspects of modern life.™™3 Nitin Desai, Secretary General of the United
Nations™ World Summit on Sustainable Development (Johannesburg, 2002)
emphasized the importance of electricity both for today and for the future:
˜˜Electricity has profoundly transformed the industrialized world and led
from the era of smoke chimneys into the era of knowledge-based services
shaping the 21st century . . . . Universal access to affordable energy services
including electricity is a prerequisite for achieving the goals and objectives
of sustainable development . . . . Electricity permeates every aspect of


Authors: William J. Hausman, John L. Neufeld, and Mira Wilkins. Signi¬cant advice from
H. V. Nelles, Peter Hertner, Harm Schroter, Jonathan Coopersmith, and Pierre Lanthier.
¨

3
Global Electri¬cation
4

economy and society.™™4 Some observers anticipated the tremendous
potential for electricity to transform the world “ not just illuminate streets
and homes “ during the earliest days of the industry. An article in the
New York Times of January 17, 1881, noted a full year and a half before
Thomas Edison™s pioneering Pearl Street station commenced operation:
˜˜That the remarkable tendency shown by inventive genius during the past
ten years toward the application of electricity to the needs of modern life
continues is a fact which is receiving fresh illustrations almost daily . . .
Never before were so many men of genius at work in shops and laboratories
trying to harness the new force in the service of man, and never was capital
more eager to meet the inventor half-way and push his schemes through the
channels of business enterprise. Electric companies for lighting houses and
thoroughfares, for supplying motors, and for innumerable other purposes
are springing up with a rapidity that is marvelous.™™5 This book describes
the role of multinational enterprise and international ¬nance in making
global electri¬cation possible.
Where does the world stand now in terms of global electri¬cation? The use
of electricity and the extent of electri¬cation can be measured in different
ways. Total production of electricity varies widely among countries. In
terms of total national production, the United States dominates, with net
electricity generation in 2003 of almost 3.9 trillion kilowatt hours (kWh),
over twice the amount generated by the second largest producer, China,
which produced 1.8 trillion kWh. Only one other country, Japan, produced
more that a trillion kWh in 2003.6 Two better measures of the relative
importance of electricity across countries are per capita consumption
(presented in Figure 1.1 for a selection of countries for 2001) and household
access to electricity (presented in Figure 1.2 for 1984, the latest date for
which comprehensive ¬gures are available).7 These measures highlight the
vast discrepancies that remain between developed countries and less
developed ones. The global electri¬cation process, while highly successful in
many countries, remains incomplete. Around two billion people, roughly
one-third of the world™s population, still do not have access to centrally
generated electricity.8
Before we trace the role of multinational enterprise and international
¬nance in global electri¬cation, we offer a perspective on the underlying
characteristics of the electric light and power sector. The chapter begins
with the inventions and new technologies that made electricity possible.
The capital intensity of this sector emerges, with its profound economic
signi¬cance. The growth of the industry was accompanied by interven-
tions by national and subnational governments, and we brie¬‚y discuss
their roles. The growth in electricity usage is shown by aggregate pro-
duction statistics, which closely paralleled consumption. At the end of the
chapter, we present a table that is at the core of our study, showing by
country changes over time in foreign ownership and control of electric
Chapter 1: Invention and Spread of Electric Utilities 5

Ethiopia
Haiti
Tanzania
Bangladesh
Senegal
Nigeria
Sri Lanka
Ghana
Indonesia
Bolivia
Pakistan
Guatemala
Nicaragua
India
Morocco
Philippines
Honduras
Ecuador
Algeria
Peru
Zimbabwe
Colombia
Egypt
China
Dom. Rep.
Panama
Turkey
Iran
Brazil
Mexico
Romania
Uruguay
Argentina
Jamaica
Malaysia
Poland
Venezuela
Hungary
Portugal
Bulgaria
Greece
Italy
Spain
Israel
U.K.
Korea, Rep.
Netherlands
Germany
Singapore
Denmark
Japan
France
Belgium
Australia
U.S.
Sweden
Canada
Norway
0 2000 4000 6000 8000 10000 12000 14000 16000 18000


figure 1.1. Per Capita Consumption of Electricity, Selected Countries, 2001 (kWh)
Source: United Nations Department of Economic and Social Affairs, Statistics Division, Energy
Statistics Yearbook (2001) (New York: United Nations, 2004), Table 35, 478“94.



utilities. This table shows the importance of foreign-owned and -con-
trolled ¬rms (multinational enterprise) to the early diffusion of electricity.
The table also reveals how in the course of time the role of multinational-
enterprise activities were reduced (a process we call ˜˜domestication™™)
until they were virtually gone by the mid-1970s. We consider the resur-
gence of foreign ownership of electric utilities over the past twenty years
in Chapter 7.
Global Electri¬cation
6

Burundi
Mozambique
Tanzania
Cameroon
Zimbabwe
Congo, Rep.
Togo
Indonesia
Sri Lanka
Malawi
Honduras
Sudan
Zambia
Nepal
Pakistan
Bolivia
El Salvador
Morocco
Guatemala
Dom Rep
Ivory Coast
Nicaragua
Syria
Philippines
Egypt
Ecuador
Mongolia
Iran
Ukraine
Romania
Jamaica
Algeria
Gabon
India
Turkey
Tunisia
Malaysia
Panama
Mexico
Jordan
Portugal
Colombia
Brazil
Uruguay
Nigeria
Chile
Argentina
Venezuela
Greece
Peru
Mauritius
Spain
Netherlands
Ireland
Sweden
Senegal
Poland
Hungary
Finland
Israel
Costa Rica
Singapore
Australia
Italy
France
United States
Korea (South)
Germany
Denmark
Canada
Belgium
0 20 40 60 80 100

figure 1.2. Percent of Households with Electricity, Selected Countries, 1984
Source: World Development Report 1994 (Oxford: Oxford University Press for the World
Bank, 1994), 224“25.



the precursors of electric light
The availability of a fully satisfactory form of arti¬cial light is a relatively
recent historical development: Until the middle of the nineteenth century,
essentially all arti¬cial light was obtained from some form of open ¬‚ame.
Ancient humans obtained light from ¬res and torches. The ¬rst great
Chapter 1: Invention and Spread of Electric Utilities 7

lighting innovation probably was the oil lamp, initially made from
hollowed-out stones some 20,000 or so years ago.9 The basic structure of
the oil lamp, with its reservoir and wick, has remained essentially
unchanged over the millennia, although many substances have been used as
fuel, including both vegetable and animal oils. From the sixteenth through
the nineteenth century, whale oil was a highly desirable fuel for lamp use.
This was eventually supplanted by mineral oil, or kerosene, originally
developed in the late 1840s and early 1850s by the Canadian Abraham
Gesner and the Scotsman James Young. Kerosene became the dominant
lamp fuel after the American Edwin Drake™s successful oil discovery in
1859 led to an enormous expansion in the availability of the crude oil from
which it was made.10
A variant of the oil lamp was the candle, whose origins are uncertain, but
which is known to have been used by the ancient Romans. The ¬rst candles
were made of either tallow (animal fat) or the superior, and hence more
expensive, beeswax.11 At the close of the eighteenth century, the use of
spermaceti, obtained from the head of sperm whales, permitted an improved
candle.12 Candles remained a relatively expensive source of light until par-
af¬n, a by-product of petroleum, became available.13 All of these sources of
light had one thing in common: They were stand-alone; none of them required
a delivery network; none was provided by a ˜˜public utility,™™ a term generally
referring to a company or organization, either private or government-owned,
that provides services to the general public over a network.14 Electricity also
could be and was provided by ˜˜isolated plants,™™ essentially generators that
were owned by the individuals or ¬rms that used the power they produced.
The ¬rst public utilities devoted to illumination were gas lighting com-
panies, which came to supply the main source of arti¬cial light in urban
areas for much of the nineteenth century, even into the twentieth century.
The ¬rst gas lighting public utility was the Chartered Gas Light and Coke
Co., which was granted a twenty-one-year charter by Great Britain™s Prince
Regent in 1812 to supply London and the surrounding boroughs.15 By
1823, three different companies were supplying gas in the London area.
Illuminating gas was manufactured by heating a fuel (usually coal, but also
wood or oil) in the absence of air. The resultant gas could then be dis-
tributed in pipes to burners that initially produced open ¬‚ames, like oil
lamps or candles. Gas lights were convenient because they required sub-
stantially less attention and maintenance than the other forms of arti¬cial
light, and they became widely used for both interior and exterior (especially
street) illumination. Although a number of re¬nements were made in the
burners (or jets) over the course of the nineteenth century, the most dra-
matic innovation in gas lighting actually occurred after the development of
the electric light. The gas mantle developed by the Austrian physicist Carl
Auer von Welsbach in 1887 placed a solid substance in the ¬‚ame that was
then heated to incandescence, thus improving both the quality and the
Global Electri¬cation
8

ef¬ciency of gas lights. The Welsbach mantle gave gas lighting a powerful
competitive weapon against the electric light and resulted in forestalling,
and even in some cases temporarily reversing, the ultimate replacement of
gas lighting by electric lighting.16

electrical technology and the birth of
electric utilities
The path leading to the creation of the electric utility began in earnest at the
start of the nineteenth century. The steps included discovery of the scienti¬c
principles of electricity, the invention of sources of power (the battery and
dynamo), the creation of devices that effectively used electricity (lights and
motors), devising a means of transmitting and distributing the electricity
(especially over long distances), and ¬nding a means of ¬nancing the whole
operation.
The production of electricity with potential commercial applications
did not occur until the invention of the battery by the Italian physicist
Alessandro Volta in 1800. A battery (which Volta termed a ˜˜pile™™) pro-
duces a direct (or continuous) current of low voltage by chemical means.
High levels of current (and/or voltage) could be obtained by connecting a
number of batteries together. Soon after Volta™s invention, the English
scientists William Nicholson and Anthony Carlisle discovered electrolysis,
the use of electricity to separate compounds into their elemental compo-
nents by separating water into hydrogen and oxygen. By 1809, their
compatriot Sir Humphry Davy had used more-powerful currents to isolate
additional elements. This led ultimately to the discovery of electrochemical
processes with signi¬cant commercial value, including electroplating and
the smelting and re¬ning of certain ores.
The signi¬cant technical breakthroughs that resulted in the creation of
the electric utility industry came ¬rst in the ¬eld of electric lighting. Early
electric lights were classi¬ed as either ˜˜arc™™ or ˜˜incandescent.™™17 Sir
Humphry Davy was a pioneer in both types of lighting. He demonstrated
incandescent electric lighting in 1801 by using batteries to heat platinum
strips. There is some evidence that Davy exhibited arc lighting the following
year, and by 1808 he was able to provide a well-documented and impres-
sive display of arc lights powered by two thousand battery cells to the Royal
Institution in London. Davy™s arc light essentially consisted of a continuous
spark between two carbon electrodes, and all subsequent arc lights were
based on the principles Davy discovered.18 Incandescence requires that a
material be heated, but it is dif¬cult to maintain the stability of a substance
at high temperatures because of its tendency to melt, vaporize, or oxidize.
Most of the improvements in both incandescent and arc lighting involved
methods of prolonging the life of the heated material. This initially proved
easier to do when the heating was associated with a spark; thus, arc lights
Chapter 1: Invention and Spread of Electric Utilities 9

gained a slight lead over incandescent lights in becoming commercialized.
Some of the earliest electric central stations, dating from the late 1870s,
provided arc street lights in major world cities such as Philadelphia, San
Francisco, New York, London, and Paris, as well as other cities.19
Electric power had a separate but related history. The electric motor™s
impact was destined to be profound, and the provision of electricity to
motors, which were used to power machinery, played a major role in the
industry. The ¬rst electric motor probably was produced in 1821 by the
English scientist Michael Faraday, who had worked as a laboratory assis-
tant to Davy, after learning of the discovery the previous year by Hans
Christian ˜rsted that a wire conducting electricity produced a magnetic
¬eld surrounding it. Faraday also discovered induction, the ability of a
moving magnetic ¬eld to create an electric current. In 1831, he developed
the ¬rst electric generator, a copper disk rotating between the poles of a
magnet.
Electric lighting and power remained curiosities until powerful and
ef¬cient generators signi¬cantly reduced the cost of producing electricity.
Stimulated by the potential for commercial success, improvements in the
technologies of lighting, power, and generation continued to be made after
the middle of the nineteenth century. Beginning in the mid-1850s, electric
arc lights powered by steam-driven generators were used at construction
sites in France and by the 1860s in lighthouses in both France and England.
Generators slowly began to replace batteries in other applications of elec-
tricity, and the use of generator-powered arc lighting spread to other areas,
including military signaling.20 None of the electricity produced for these
uses came from central-station utilities; all of these uses were satis¬ed with
isolated plants.
A major factor hindering the ¬rst generators was the lack of strength of
the permanent magnets they employed. Although designs incorporating
electromagnets to help increase the strength of the magnetic ¬eld were tried
as early as the mid-1840s, the major advance occurred with the discovery
and publication of the principle of self-excitation virtually simultaneously
by Charles Wheatstone, the brothers C. and S. A. Varley, and Werner
Siemens in 1866“1867.21 The iron core of an electromagnet retains some
slight magnetism even when the current is off. This residual magnetism is
enough to generate a small amount of current in a rotating armature, and
when the armature is appropriately wired the current will increase sub-
stantially. Originally, the term ˜˜dynamo-generator™™ was used to distinguish
this from the ˜˜magneto-generator,™™ which used permanent magnets.
Ultimately, the former term was shortened to ˜˜dynamo,™™ which came to be
applied generally to all electric generators.
One important technical aspect of producing electricity that later was to
create controversy was whether direct or alternating current would be used.
Although batteries always produce direct current, generators can be
Global Electri¬cation
10

designed to produce either direct or alternating current. Both direct- and
alternating-current generators were developed almost simultaneously.22
The ¬rst commercially successful dynamo was produced in 1871 by
Zenobe-Theophile Gramme, who was born in Belgium but did much of his
´ ´
work in France. It was signi¬cantly more ef¬cient than any generator
produced previously. Although until the late 1870s it continued to be used
primarily by the electrochemical industries, it made the more widespread
use of electric lighting inevitable, and by 1879 Gramme had sold over one
thousand dynamos. Gramme™s dynamo, furthermore, could also function as
a motor, a phenomenon demonstrated at the Vienna Universal Exhibition
of 1873. In the Philadelphia Centennial Exhibition of 1876, Gramme
dynamos powered arc lights, electroplating demonstrations, and other
dynamos run as motors.23
By the middle of the 1870s, the commercial prospects for electric lighting
seemed clear, but the conditions required for an industry of centrally generated
electricity required an additional technical advance: how to power multiple
lights from a single generator. An inherent problem of an arc light is that the
electrodes are consumed as the light burns, which increases the gap between
the electrodes until the arc can no longer span it. Some means had to be devised
to prevent this. Several ˜˜regulators™™ had been developed initially that adjusted
the gap, but putting multiple lamps on the same circuit made these regulators
inoperative.24 This problem was addressed in a novel way by the invention in
1876 of a new type of arc light by the Russian military and telegraph engineer
Paul Jablochkoff (Pavel Yablochkov), who worked mostly in Paris.25
Jablochkoff™s ˜˜candle™™ eliminated the need for a regulator by placing the
electrodes in parallel with a solid material used as a spacer. The lamps were
cheap but short-lived and could not be relit once they were turned off.
Jablochkoff was able to install several lamps in series in a single circuit, and he
was able to make lamps of varying brightness, although all were too bright for
residential use. The connection of arc lights in series became the standard
industry practice.26 Jablochkoff™s system, which used alternating current,
was installed in numerous locations in Paris both by his Societe Generale
´´ ´ ´
´
d™Electricite and by others, and was also used, in 1878 and 1879, in various
´
locations in London.27 Ultimately, however, Jablochkoff™s system was
superseded by those using lamps with superior regulating mechanisms,
including the successful systems of R. E. B. Crompton in England and both
Charles F. Brush and William Wallace-Moses Farmer in the United States.28 A
number of commercial enterprises in various countries began providing arc
lighting both to municipal governments for street lighting and to private users,
including large stores and factories, in 1879 and 1880. These systems, the ¬rst
central stations, generally consisted of a number of arc lights connected in
series to a generator, controlled by a common switch, which was suitable for
street lights and for lights in public places. Residential lighting continued to be
provided by gas, oil lamps, or candles.29
Chapter 1: Invention and Spread of Electric Utilities 11

The problem of the excessive brightness of arc lights was well known,
and many inventors tried to tackle this problem, sometimes called
˜˜subdividing the light,™™ by developing a fundamentally different form of
electric light. If electricity was allowed to ¬‚ow through an appropriate
conductor, the conductor could become hot enough to incandesce. Such an
approach to producing light held the promise of permitting a lower-
intensity light than that produced by an arc light. A major technical
impediment was that the conductor thus heated had a tendency either to
melt or to burn up, thereby breaking the circuit. A method had to be found
either to increase the life of the incandescing conductor or to automatically
replace conductors consumed in the current.
Considerable progress in the development of incandescent lamps had
been made in the 1840s and 1850s. Heinrich Goebel, a German who had
emigrated to the United States, used incandescent lamps to illuminate a
display window in his New York City watch shop in 1854. The Russian
Alexander de Lodyguine used two hundred incandescent lamps in 1856 to
light up the harbor of St. Petersburg. While Goebel tried to keep his con-
ductor in a vacuum, Lodyguine used a nitrogen-¬lled bulb.30 These two
methods “ vacuum and nitrogen “ were pursued by a number of inventors
as a means of avoiding oxidation of the conductor. The Englishman Joseph
Swan also worked on the incandescent light during this time and deter-
mined that carbon was the best conductor. Thirty years later, he returned to
his work on the incandescent light and became one of its commercially
successful pioneers.31
Although numerous inventors had appreciated the problem of protecting
the incandescing conductor from the destructive effects of oxygen, they
were unable to produce either a complete enough vacuum or a container of
inert gas suf¬ciently devoid of oxygen to enable an incandescent light to
have a reasonably long life. This changed in 1865 with the invention of the
mercury drop pump by the German chemist Hermann Sprengel. With
subsequent improvements, these pumps dramatically improved the ability
to produce a vacuum. Swan used a Sprengel pump to demonstrate a
workable incandescent light before the Royal Institution in February 1879.
Eight months later, Thomas Edison also demonstrated a workable incan-
descent lamp with a carbon conductor produced with the aid of a Sprengel
pump.32
While Edison probably should not be remembered as the inventor of the
incandescent electric light (for which Swan has an equal claim), he deserves
to be remembered as the inventor of the modern electric utility “ that is, a
system for the production and delivery of electricity.33 Edison was not a
solitary inventor, but rather the head of a multiperson inventing enterprise,
and many of the ideas that came from that enterprise may have originated
with others.34 Edison was a successful promoter and had the backing
of established ¬nanciers willing and able to bring his ideas to market.
Global Electri¬cation
12

Edison approached the problem of the incandescent light as a piece of a
larger plan to develop a new utility to replace the gas-lighting utility “ one
that would provide lighting in residences, commercial establishments,
workshops, and factories. This required an electrical infrastructure very
different from that used by arc-lighting utilities and one closer to that of the
gas-lighting industry. Unlike in the case of arc lights, incandescent lights
needed to be individually controlled, and the control had to be in the hands
of the customers, not the utility. This meant that incandescent lights had to
be connected in parallel rather than in series, and this had implications for
the equipment that would be required.
Edison became convinced that a high-resistance ¬lament would be
required for his new system. Arc lights, and the incandescent lights designed
by previous inventors, had low resistance, which was appropriate for
devices connected in series. Without high resistance, parallel connection
would have resulted in the need for high current, requiring thick distribu-
tion wires with unacceptably high costs.35 Unlike others, Edison designed
his incandescent light within a framework of a wholly new system, whose
costs he believed had to be as low as that of gas. Actual costs turned out to
be much higher than his initial calculations anticipated, but his reasoning
proved to be sound.36 Edison opened his ¬rst central stations in London
and New York in 1882.37

beyond edison: the advantages and early development
of large networks
The most signi¬cant competitor to the electric utility Edison envisioned
was the isolated plant, where users produced electricity with their own
generator, rather than purchasing electricity from a central-station utili-
ty.38 This became a common practice for factories and large commercial
establishments that, at least in the early days, were able to employ the
same basic equipment as that used by a utility.39 Isolated plants were
cheaper to build because they avoided the costs of constructing a trans-
mission and distribution system over a large geographic area, something a
central station required. But the network that a larger transmission and
distribution system entailed “ particularly one connecting many con-
sumers and many generating stations “ provided a utility with several
economic advantages that eventually became decisive. These included the
ability to take advantage of scale economies, the freedom to separate the
decisions of generator location from the location of electricity use, the
reduced cost of improved reliability through the use of backup generators,
the reduced cost of supplying electricity to users whose consumption is not
steady throughout the day and not perfectly correlated, and the ability to
make more ef¬cient use of hydroelectricity, made possible by long-
distance transmission.
Chapter 1: Invention and Spread of Electric Utilities 13

Scale economies in generation eventually made the optimum size of
generators far exceed that required by almost any single user. The use of
such equipment was justi¬ed only within the context of a network, where
the combined demand of many users allowed the adoption of generators of
the optimum scale. By separating the location decisions of electricity pro-
duction and consumption, less expensive real estate could be used for siting
a utility generating plant. Sites suitable for hydroelectric generation are
in¬‚exibly provided by nature and also often are not suited for locating
industrial plants, nor are they necessarily near population centers. But a
network with long-distance transmission lines allows a hydroelectric plant
to be sited some distance from the users of its electricity. In addition, a
given level of reliability could be attained more cheaply by utilities with
networks than by isolated plants. The American-born head of So¬na,
Dannie Heineman, made a similar point at the First World Power
Conference in 1924 regarding larger- versus smaller-scale units: ˜˜Every
circumstance which may increase the number of kW. installed or which
may diminish the annual utilization of these kW., will augment the cost of
production. Subdividing the production among a large number of small
central stations, when a few big central stations would suf¬ce, is pernicious
because . . . smaller generation units not only greatly increase capital
expenditure, but are far less ef¬cient . . . [and require] the installation of a
much greater number of reserve (stand-by) units, which, while necessitating
an increase of invested capital, diminishes the utilization of the installed
machinery.™™40
Most importantly, a network also has an advantage if the consumption
patterns of customers peak at different times. It is very expensive to store
electrical energy. Without storage, the amount of generating capacity
required to supply any electricity use is determined by the maximum power
requirements of that use, even if that maximum is used for only a brief
period, a phenomenon known as the ˜˜peak-load problem.™™41 At all other
times, the system will be operating well below capacity. If different cus-
tomers on a network have their maximum power requirements at different
times, the unused capacity of one customer can meet the increased demand
of another customer. Thus, the total generating capacity required to meet
everyone™s needs on a large network will never be as much “ and may be
much less “ than the total generating capacity required if each customer had
his own isolated plant or was part of a small network.
The ability of a network to allow ¬‚exibility in siting a hydroelectric plant
has already been mentioned, but networks also facilitated the exploitation
of hydroelectricity in other ways. The generation of electricity from most
hydroelectric sites is uneven and often unpredictable because it depends on
the availability of falling water, which itself often depends on rainfall. By
combining steam with hydroelectric generation, shortfalls in hydroelectric
generation could be made up with steam generation, making the total
Global Electri¬cation
14

supply of electricity to users more valuable than if users obtained electricity
from a single hydroelectric site.42
A given amount of power can be transmitted either with low voltage and
high current or with high voltage and correspondingly lower current. As a
practical matter, the transmission of large amounts of power over long
distances must be done at high voltage because the conductors (wires)
required for low voltage would be unfeasibly large. At the same time, very
high voltage is not practical for use in many electric devices because it poses
extreme safety risks for ordinary electricity users. A large network therefore
needs a way to change voltages: generation at a relatively low voltage
suitable for generator design, much higher voltages for transmission, and
reduced voltages again for ¬nal use. It soon became apparent that it was
much easier in a system using alternating current than in a system like
Edison™s, which used direct current, primarily because the relatively simple
transformer initially worked only with alternating current.43
Alternating current and transformers were in use before Edison designed
his direct-current system, yet no one initially recognized that they offered a
solution to the problem of enlarging the geographic scope of an electricity
network. An important advance was made by the Frenchman Lucien
Gaulard and his English business partner John Gibbs. Gaulard and Gibbs
demonstrated in 1883 a transformer in which the voltage could be varied
according to the needs of the load. This permitted lamps with different
voltages to be used on the system. Gaulard and Gibbs also realized that
their transformers could be used in a system to convert the high voltage
necessary for long-distance transmission to the lower voltage needed for
end use.44 The Gaulard and Gibbs system, however, suffered from several
problems, including inadequate voltage regulation. Improvements were
forthcoming, including those made by the Hungarian engineering ¬rm
Ganz & Co., which displayed its system at the Hungarian National Exhi-
bition in Budapest in May 1885.45 The system was re¬ned further by the
¬rm of George Westinghouse in the United States. Westinghouse, using the
technical expertise of William Stanley and patents developed by Nikola
Tesla, was the pioneer in commercializing the alternating-current system.46
Other pioneers in alternating-current systems included Sebastian Ziani de
Ferranti, chief designer of the London Electric Supply Corporation™s
Deptford power station, and the Thomson-Houston Co. in the United
States.47
The use of direct current, even for transmission, did not immediately
disappear. The development of alternating-current motors lagged that of
direct-current motors, and direct-current motors retained a signi¬cant
advantage where applications required speed control and high starting
torque, such as in elevators and short-haul transit.48 Alternating current™s
share of generation increased through the use of rotary converters
and motor-generators, devices that could convert electricity transmitted as
Chapter 1: Invention and Spread of Electric Utilities 15

alternating current to direct current for ¬nal use.49 These devices enabled a
utility to build and maintain a large alternating-current network and pro-
vide direct current for those uses for which it was best suited. Sometimes
whole urban areas were supplied with direct current in this way, main-
taining the service that had originally been supplied by direct-current
generating stations.50 An example from 1895 of the con¬guration of an
alternating-current system, with both alternating- and direct-current end
uses, including traction, is illustrated in Figure 1.3. This style of network
would be common by the end of the nineteenth century.

electric traction
Tramways, which used rails to reduce friction and horses, mules, and other
draft animals to provide motive power, predated electricity. Steam railways
provided some intra-urban transit; but for purposes of short-distance
transportation, the electric motor had important advantages over the steam
engine. Compared with steam engines (or draft animals), electric motors
could be made very powerful for their size. In addition, electric motors were
much better suited to the erratic pace of urban transit than were steam
engines, because they were easier to start and stop and their performance at
varying speeds was superior. Electric motors were also cleaner and quieter
than steam engines or draft animals. A major problem with the mobile
electric motor, however, was that a method of providing electricity to it had
to be devised, and this took many years to develop.51 Attempts were made
to do this with on-board batteries by a number of companies in the United
States, France, and Britain, but these efforts generally were not successful.52
The critical problem was devising a means to provide electricity to moving
vehicles from stationary generating plants in a way that was economical
and that prevented even brief interruptions. Achieving this goal was the
most serious technical issue for electric public transportation.53
The ¬rst time an electric motor was used for traction was at the Berlin
Industrial Exhibition in 1879, where Siemens & Halske installed a small,
narrow-gage electric train that carried visitors in a circle around the exhi-
bition grounds: ˜˜The train was originally designed for use in a mine tunnel
and a complete [electric] railway was installed later by Siemens in 1882 in a
coal mine in Saxony.™™54 In 1881, Siemens & Halske constructed the ¬rst
electric tramway using externally generated current (and the ¬rst to collect
fares), a 2.5 km experimental line running between Groß-Lichterfelde and
the Royal Cadet College south of Berlin. Two running rails on the ground
provided current, which was dangerous, resulting in occasional shocks to
unwary horses and pedestrians and highlighting the severe limitations of
this technology.55
Siemens™s French subsidiary, Siemens Freres, demonstrated a tram that
`
used safer, overhead lines at the International Electricity Exhibition held in
ROTARY CONVERTER
STEP DOWN TRANSFORMER
500 VOLTS
2000 V. TO 110 V.
DIRECT CURRENT 3-WIRE SYSTEM




STEP DOWN
TRANSFORMERS
10,000 V. TO 310 V.

BANK OF TRANSFORMERS
STEP DOWN TRANSFORMERS
FOR CITY DISTRIBUTION
10,000 V. TO 2000 V.
2000 V. TO 110 V.

CUT OUT STATION

LOW POTENTIAL FEEDERS
AND MAINS 2000 V.
SYNCHRONOUS
MOTOR
10,000 VOLT TRANSMISSION
LINES




16
CUT OUT STATION



INCANDESCENT
LIGHTS
STEP UP TRANSFORMERS
2000 V.
2000 V. TO 10,000 V.
INDUCTION MOTOR
110 V. ARC & INCANDESCENT
INDUCTION LIGHTS ON 110 V.
MOTOR CIRCUIT

BUS BARS



110V.
INDUCTION

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