<<

. 5
( 20)



>>

lished, sophisticated banking sector. In addition, Switzerland was a splen-
did setting for hydroelectric power, and there was substantial investment
within Switzerland in such facilities and great experience in the ¬eld.
Because Switzerland had excellent polytechnical schools, engineering talent
was readily available.99
A second group of holding companies, their origins also in the mid-
1890s, were registered in Belgium, a nation where company law made it
possible for ¬rms to obtain ˜˜executive control . . . with little capital outlay,
the real capital being furnished by debentures and bonds.™™ Like Switzerland
in the late nineteenth and early twentieth centuries, Belgium could bring
together French and German capital.100 Some of the Belgian companies
were doing Unternehmergeschaft; some were purely investment companies
¨
(the word Bankgeschaft has been used for them). Sometimes the Unter-
¨
nehmergeschaft form and the investment company form were combined (in
¨
Switzerland as well as in Belgium). By way of precedent, Belgium stands out
as the home of the ¬rst investment trusts and the ¬rst universal banks. The
latter had been deeply involved ¬rst in railroad and then in tramway
¬nance, where the Belgians took on the greatest importance.101 There was
no single model that covers the history of Belgian holding companies.102 In
time, Belgium became very much a tax haven for French capital, but this
does not seem to have been the pre“World War I motive (or at least not the
major one) behind the earliest Belgian holding companies.103 What was
perhaps most remarkable was the Belgian international role in tramway
Chapter 3: Every City, 1880“1914 97

companies, providing power for what had been horse- or mule-powered
tramways. These investments were made, in the main, in association with
holding companies and/or business groups. (As noted in Chapter 2, the
terms ˜˜holding companies™™ and ˜˜business groups™™ sometimes blurred.) The
Belgian-headquartered international tramway activities often anticipated
and then overlapped with the more general Belgian involvements in electric
light and power utilities. Around the world, the electri¬cation of tramways
was introduced by foreign entrepreneurship and international ¬nance, with
the Belgian role predominant but far from alone.104
While Switzerland and Belgium were conspicuous in the size and sig-
ni¬cance of the holding companies that participated in foreign investments
in electric utilities, elsewhere on the European continent “ especially in
Germany and France “ investors also formed such companies to provide a
legal structure for business abroad in light and power facilities. The holding
companies were sometimes a combination of holding and operating com-
panies “ that is, in some cases the ¬rm at the pinnacle delegated the
operations to separately established operating companies, and in others it
acted directly to operate the business abroad. (The degree of delegation to
an operating company varied: Sometimes there were contractual relation-
ships that insisted on the purchase of equipment from a particular elec-
trotechnical company; and at other times the delegation was nominal, with
the holding company itself installing the management for the operations.)
Let™s start with the pioneer Swiss holding companies and their networks
of associations, through both their ownership and their holdings. In 1895,
AEG established in Switzerland the Bank fur Elektrische Unternehmungen
¨
(Elektrobank), Zurich, and Brown, Boveri founded the Motor fur Ange- ¨
wandte Elektrizitat (Motor), Zurich. The next year (1896), Siemens orga-
¨
nized the Schweizerische Gesellschaft fur Elektrische Industrie (Indelec),
¨
105
Basel. The primary purpose of Elektrobank, Motor, and Indelec was to
invest in and to run electric utilities abroad. These holding companies not
only had representatives from the equipment manufacturer on their boards
of directors, but also had signi¬cant connections with leading banks
because the electric utilities had large ¬nancial needs. Indeed, a historian of
the Deutsche Bank credits the latter with the formation of Elektrobank,
which is not fully accurate.106 The way the manufacturers and banks
interacted was fundamental, with each acting in its own interest, yet the
result was a mutuality of interest because the manufacturers wanted to
increase exports and the banks wanted to ¬nance exports and have the
utilities provide ¬nancial returns to the banks and their clients.
As earlier indicated, the links between AEG and Deutsche Bank were
long-standing and intimate. On the other hand, the Zurich holding com-
pany Elektrobank was associated not only with the Deutsche Bank but also
with four other German banks “ two large ones, Berliner Handelsge-
sellschaft and the Nationalbank fur Deutschland, and two private ones,
¨
Global Electri¬cation
98

Jacob Landau and Delbruck “ as well as with key Swiss, French, and Italian
¨
banks: Credit Suisse, the Banque de Paris et des Pays-Bas (Paribas), and the
Banca Commerciale Italiana.107 The participant banks were not always
˜˜independent,™™ for among the banks themselves there were interconnec-
tions.108 While all historians agree that Elektrobank, set up in Switzerland,
was a German ˜˜creation,™™ apparently in order to reach French capital
markets, in particular, Elektrobank™s founders believed it was desirable
to make it ˜˜look™™ Swiss. Its ¬rst president was from Credit Suisse.109 In
emphasizing the AEG and the more general German role, we should not
shortchange the universal bank Credit Suisse, which had been since its
origin in 1856 a major player in railroad ¬nance. A Credit Suisse historian
writes that ˜˜the years leading up to the First World War brought a hefty rise
in underwriting activity and securities commission business. At the same
time, the provision of funds for Switzerland™s young electricity industry
came to assume the same importance as support for railway construction
40 years earlier.™™110 Credit Suisse was involved in railroad construction in
Switzerland and abroad; likewise, it became a participant in public utilities
¬nance at home and abroad.
At its origin, the second of the key 1895 Swiss holding companies,
Brown, Boveri™s Motor had more limited banking ties than Elektrobank,
with its banking associations solely with Leu & Co., Zurich. Later, Union
des Banques Suisses (otherwise known as Union Bank of Switzerland) came
to be a shareholder in Motor.111 As for Siemens™s Indelec, Basel, the third of
the three principal 1895“1896 Swiss holding companies, it originally had
its own banking alliances, although there were overlaps with the other
Swiss holding companies: For example, Leu & Co., Zurich, was involved
with Indelec as well as with Motor. Historian Serge Paquier believes that
from the start the Basler Handelsbank ran Indelec, while Peter Hertner
argues that early on Indelec was closely supervised by both Siemens &
Halske and the Basler Handelsbank, but over time, because Siemens was
not willing to increase its share of Indelec capital, its in¬‚uence slowly
declined.112 Once again, depending on whether one reads the electro-
technical or the banking literature, the lead player in the Swiss holding
companies might be differently interpreted. We are convinced that the
appropriate way to reconcile this divergence is that the manufacturer was
crucial in the choice of the public utilities™ power equipment needs, whereas
the bank(s) handled the ¬nancing requirements. Control was partial, and
there were the separate bene¬ts.
By 1904“5, each of these three Swiss holding companies “ Elektrobank,
Motor, and Indelec “ had acquired its own technical staff, fully au courant
in the electricity supply business. Initially, AEG™s Elektrobank and Siemens™
Indelec directed their activities mainly to building up public utilities in Italy,
Spain, and Germany, as well as in Switzerland, but by 1914 Elektrobank
had direct investments in electric power companies in nine European
Chapter 3: Every City, 1880“1914 99

countries, while Indelec was a direct investor in seven European coun-
tries.113 Elektrobank was far more important than Indelec and had a far
stronger set of banking connections. For example, in 1905“1906, Elek-
trobank arranged that the shares of the German-controlled Spanish public
utility Compania Barcelonesa de Electricidad be traded on the Barcelona,
˜
Berlin, Zurich, Basel, and Geneva stock exchanges.114 In 1913“1914,
Elektrobank™s portfolio was divided in these proportions: Germany (53
percent); Italy (18.1 percent); Switzerland (8.6 percent); Spain and
Portugal (4.6 percent); France (1.8 percent); and Russia, Eastern Europe,
and countries outside of Europe (13.9 percent, of which 3.4 percent was in
South America). That same year, Indelec™s portfolio was divided differ-
ently: Italy (38.9 percent), Germany (38.6 percent), Russia (18.0 percent),
France (1.4 percent), and other countries (3.1 percent). As for Motor, its
initial activities had been at home in Switzerland, but it expanded to
neighboring countries and beyond, so that by 1913 the distribution of its
holdings was Switzerland (61.2 percent), Italy (25.9 percent), Germany
(9.2 percent), France (3.2 percent), and Denmark (0.5 percent). The small
interest by these three Swiss-headquartered holding companies in Latin
America did not re¬‚ect the actual German or Swiss participations; diff-
erent ¬nancial intermediaries (or holding company structures) handled
these investments. Likewise, these lists do not adequately portray the
German or Swiss interests in the Austro-Hungarian or in the Ottoman
empires.115
The international activities of the Germans and the Swiss in electric
utilities, while very important in Europe, were not con¬ned to that conti-
nent. In 1897, AEG obtained concessions from the municipal governments
in Buenos Aires, Argentina, and Santiago, Chile, to set up electric genera-
tion stations. To carry on these activities, in January 1898 AEG formed
¨
Deutsch-Uberseeische Elektrizitats Gesellschaft (DUEG), Berlin, known in
¨
Argentina as Compan±a Alemana Transatlantica de Electricidad (CATE),
˜´ ´
with ¬nancing from a group of banks, including Deutsche Bank and
Berliner Handelsgesellschaft. (DUEG and CATE were the same company;
in some instances, DUEG/CATE operated directly, in others it served as
a holding company.) A Siemens historian notes that shortly after the for-
mation of DUEG, Siemens also became a participant in this company,
which was not odd, for as we have often noted AEG and Siemens both
cooperated and competed in their international business.116 CATE
expanded rapidly in Buenos Aires, buying other providers of electricity and
increasing its capacity. Its ¬rst power station had a capacity of 5,130 kW;
by 1907, when its new power station came into operation, CATE™s total
capacity was 78,300 kW. That year, when it was the sole public provider of
electricity in Buenos Aires, it received a ¬fty-year concession from the
municipal government to supply electric power (although the concession
did not give it exclusive rights). By 1914, the capacity of its central power
Global Electri¬cation
100

stations in Buenos Aires was 179.4 million kW. CATE was by then the
single largest German direct investment overseas. It was also an investor in
electric utilities in Chile and Uruguay. AEG/CATE™s main interest in Chile
followed a different path from that in Argentina. In 1898, the Chilean
Electric Tramway & Light Co. Ltd., London, was founded by the Gesell-
schaft fur Elektrische Unternehmungen (Gesfurel), Berlin, one of the
¨ ¨
holding companies associated with Union Elektrizitats Gesellschaft (UEG)
¨
and then (after the merger between UEG and AEG was completed in 1905)
with AEG. In 1905, Chilean Electric (retaining its British registration)
became an af¬liate of CATE. In a pyramided relationship, in 1914 AEG™s
Elektrobank acquired a large quantity of CATE shares. Deutsche Bank
historians point out that the consortium that had ¬‚oated DUEG/CATE was
headed by that German bank; indeed, in 1919, when decisions were to be
made on purchasers who could ˜˜run the company properly,™™ it was not AEG
(or Siemens) but the Deutsche Bank that set the strategy (see Chapter 4).117
In 1913, the DUEG/CATE enterprises formed the largest public utility group
in Latin America.118
In addition, in 1905, after the completion of its merger with UEG, AEG
came to play a material role in Belgian business abroad.119 In 1895, the
German UEG (then a General Electric af¬liate) had participated in the
´
organization in Belgium of Societe Generale Belge d™Entreprises Electriques
´´ ´ ´
(SGB). UEG™s partner in this precursor of Electrobel was Societe Generale
´´ ´ ´
´ conomiques (one of the oldest Belgian tramway
des Chemins de Fer E
holding companies); also involved were key Belgian, French, and German
banks.120 SGB ˜˜carried out consultative engineering works and act[ed] as
main contractors with the right to sub-contract for machinery and other
equipment.™™121 It took part in electric utilities in Belgium and abroad. As
Herman Van der Wee and Martine Goossens have written, ˜˜[A]t the end of
the [19th century] the quickly developing electricity industry and the
¬nancial sector were . . . integrated into the foreign investment strategy of
[Belgian] mixed banks.™™122
If AEG after its merger with UEG played a role in SGB, far more sig-
ni¬cant was AEG™s participation in what became one of the world™s premier
public utility holding companies: Societe Financiere de Transports et
´´ `
d™Entreprises Industrielles (So¬na). Headquartered in Brussels, So¬na had
been established in 1898 by UEG/Gesfurel, in cooperation with Belgian
¨
banks and the two large German banks Disconto Gesellschaft and Dresdner
Bank. With the AEG-UEG merger, AEG came to control So¬na. AEG
dispatched American-born engineer Dannie Heineman to So¬na in 1905. At
that time, So¬na had only two other employees on the payroll!123 It was a
˜˜paper™™ company. Heineman would transform the organization: So¬na
expanded its international investments in operating companies in the
electricity supply and tramway business in Austria-Hungary, Belgium,
Denmark, France, Italy, Portugal, Russia, Spain, and Turkey, and, in
Chapter 3: Every City, 1880“1914 101

addition, it developed an important presence in Latin America, principally
in Argentina. It also did business in the Far East. By 1913, it had interests in
forty-four companies in thirteen countries.124 In 1914, So¬na organized an
English af¬liate to take over the principal tramway and lighting companies
in Calcutta, Madras, and Bombay (now Mumbai), India, a plan that was
abandoned with the advent of World War I.125 In short, by the start of World
War I, AEG was participating in an extended business group that included
Swiss, Belgian, and German holding companies, as well as British companies,
in a far-¬‚ung international business in the electric utilities sector.
For a hint of the complexity of these developments, one has only to view
the diagrams in Jacques Thobie™s article ˜˜European Banks in the Middle
East.™™ In December 1911, the Constantinople Consortium was formed in
Brussels; it comprised German, French, Belgian, and Swiss groups. Its aim
was to seek business in energy and transport. The Constantinople Con-
sortium, in turn, organized in June 1914 the Societe des Tramways et de
´´
´ lectricite de Constantinople (STEC), registered in Belgium. In this com-
l™E ´
pany, the French contingent (35 percent interest) was apparently the larg-
´
est; it had Societe Centrale pour l™Industrie Electrique (SCIE) and French
´´
Thomson-Houston (FTH) taking part, along with a coterie of French
banks. The German group (32.2 percent) was in second place; it was made
up of Elektrische Licht und Kraftanlagen AG (ELK), a Siemens holding
company, and Gesellschaft fur Elektrische Unternehmungen (Gesfurel), as
¨ ¨
we have seen, associated with AEG; the Deutsche Bank; and a bevy of other
German banks. The third-ranking group was Belgian (24.55 percent) and
dominated by So¬na (which, as we have also seen, was in 1914 an AEG-
controlled company); in addition, there were ten other Belgian ¬rms
included. Thobie concluded that the ˜˜formal structure masked the reality
of German domination, based on the weight of German capital in
SOFINA . . . .™™126
Brown Boveri™s holding company, Motor, had focused ¬rst on public
utilities at home in Switzerland, where there was rapid electri¬cation, but as
noted above, by 1913 its ¬nancial holding company, Motor, had invest-
ments in power companies in ¬ve European countries. In 1913, Brown
Boveri established, along with ˜˜Italian allies,™™ a second holding company,
Columbus AG fur Elektrische Unternehmungen, to invest in public utilities
¨
in South America, beginning with the prosperous Argentina, where its
interests at origin were in Compan±a Italo-Argentina de Electricidad.
˜´
Shareholders in Columbus in 1913 were Motor, a group of Swiss banks,
and an Italian contingent, including Pirelli (a manufacturer of insulated
cables), Franco Tosi (an electromechanical ¬rm), and the London branch of
Credito Italiano. (The Pirelli group was among the main shareholders in
Credito Italiano.) The principal Swiss banks linked with Columbus were
the private banking house Leu and Union des Banques Suisses (Union Bank
of Switzerland), both of which were close to Motor and Brown Boveri.127
Global Electri¬cation
102

Meanwhile, in 1897“1898, the Societe Franco-Suisse pour l™Industrie
´´
´ lectrique (Franco-Suisse) was founded, with headquarters in Geneva.
E
(German-dominated holding companies in Switzerland tended to be in
Zurich or Basel, while French ones gravitated toward Geneva.) Franco-
Suisse was yet another of the Swiss holding companies organized to offer
funding (and more) for the construction, introduction, and expansion of
public utilities at home and abroad. In this case, the French manufacturer
Societe Schneider & Cie. obtained a minority interest (8 percent); Schneider
´´
intended to supply the newly ¬nanced utilities with equipment from its
electrical works at Le Creusot and then, after 1901, those at Champagne-
sur-Seine. Other participants were Swiss and French banks, including
Credit Suisse, Zurich; the private Geneva banks Lombard, Odier and Pictet
& Cie, and representatives from l™Union Financiere de Geneve and the
` `
128
Banque de Paris et des Pays-Bas (Paribas). Hubert Bonin points out,
however, that typically ˜˜[t]he French banks did not favor the creation of
¬nancial holding companies for industry, unlike the German, Belgian, or
Swiss conglomerates, which served as spearheads for penetration of mar-
kets for capital goods in the new countries.™™ In 1902, Franco-Suisse did,
however, participate in the organization of Societe Financiere Italo-Suisse,
´´ `
Geneva (Italo-Suisse), which became heavily involved in the ¬nancing of
Italian utilities. Franco-Suisse™s activities notwithstanding, it remained a
modest enterprise when compared with such Swiss holding companies as
Elektrobank or Indelec “ or Motor, for that matter.129
In the early twentieth century, the Swiss ˜˜elektrizita¨ts-trusts™™ (as they were
often called) expanded greatly, principally within Europe, although, as noted,
Elektrobank had interests in DUEG/CATE, and with the formation of
Columbus in 1913 the holding companies showed new interest in South
America. From 1898 to World War I and beyond, Swiss elektrizita ¨ts-trusts
had larger outward foreign investments (three years excepted) than the sum
total of all other Swiss direct investments abroad.130 Switzerland™s central
geographical position “ bordering Germany, France, Italy, and Austria “ made
a difference, accenting and shaping its international role. Often the cross-
border involvements seemed regional “ that is, related to the strategic position
of particular Swiss cities. The Swiss holding companies overlapped with and
worked with (and at times separately from) the Belgian companies. We have
noted AEG™s Elektrobank in Switzerland and AEG™s involvements in two
Belgian holdings companies, SGB and its even more important role in So¬na.
SGB and So¬na were not alone among the Belgian holding companies.131
A prominent player in the international ¬nancing of electric utilities was
the Belgian Empain group, organized by the great Belgian industrialist
Baron Edouard Empain (1852“1929). Empain had founded a bank in
Brussels in 1880. His group™s activities “ which came to comprise a for-
midable number of holding and operating companies, intricately interwo-
ven “ started in the early 1880s in local railways in Belgium and France.
Chapter 3: Every City, 1880“1914 103

While remaining involved in railways, the group expanded its interests, ¬rst
into horse-drawn tramways, then into their electri¬cation, and subse-
quently into providing light and power. In 1892, Empain established a
holding company, the Compagnie Belge des Chemins de Fer Reunis ´
(Reunis); Reunis™s initial interest in electricity was in 1894, when it took
´ ´
over a tramway company in Lille, France, from the Belgian Philippart
group. Note that this mid-1890s date coincides closely with the origins of
the other key electrical holding companies in Switzerland and Belgium.
Twenty years later, Reunis had important investments in railways and
´
tramways throughout Europe (in Belgium, France, Greece, Ireland, Italy,
Luxembourg, Portugal, Russia, and Spain), as well as in Argentina, Belgian
Congo, Chile, China, Egypt, and Turkey. In 1896, the Empain group had
organized a Belgian holding company, Societe Russe-Francaise de Chemin
¸
´´
de Fer et Tramways (RF), which invested in France and Russia. Its main
goal was to participate (in 1898) in the Paris Metro, from the start an
electric subway. The Empain group would be, until the Metro™s munici-
palization after World War II, the largest single shareholder in the Paris
Metro (RF™s equity ranged from 15 to 30 percent). The Paris Metro served
to stimulate the formation of electricity producers and distributors as well
as electrical manufacturers, in which Empain then became involved. Thus,
the Empain group in 1900 took part in the creation of Societe Parisienne
´´
´ lectriques (com-
pour l™Industrie des Chemins de Fer et des Tramways E
´
monly known as Parisienne Electrique). RF provided a signi¬cant part of its
´
portfolio in exchange for shares in Parisienne Electrique. The next step for
Empain was an investment in the construction in 1903 of a power station in
´ ´
Paris by the Societe d™Electricite de Paris (SEP); Parisienne Electrique
´´ ´
became the French holding company for that property. Finally, the Empain
group moved into electrical manufacturing in 1904 in Belgium and France
´
(through an acquisition). Ateliers de Constructions Electriques de Charleroi
(ACEC) was organized that year to serve as a manufacturing subsidiary;
´
Parisienne Electrique managed the French manufacturing plant in Jeumont
until in 1906 the Empain group created an additional subsidiary: Ateliers de
´
Construction Electriques du Nord et de l™Est (ACENE). Meanwhile, in
1904 Empain had merged RF and another of its Belgian holding companies
´
to form Compagnie Generale de Railways et d™Electricite (known as Rail-
´´ ´
´ lectricite), a giant Belgian holding that would invest in many
ways et E ´
subsidiaries in Belgium and, along with the other members of the Empain
´
group “ Reunis and Parisienne Electrique “ make investments in Europe,
´
Asia, Africa, and South America. Gradually, electricity had become the
principal activity of the Empain group, with a span of dramatic interna-
tional involvements. The overlapping holding and operating companies
from Spain to Russia, from the Belgian Congo to Egypt, were formidable.
In Egypt, Edouard Empain built a mansion for himself in Heliopolis,
a suburb of Cairo. His Cairo Electric Railways and Heliopolis Oasis
Global Electri¬cation
104

Company got a concession in 1906 from the Egyptian government, built an
electric tram line linking Cairo with Heliopolis, and developed a housing
project in Heliopolis. The group would become a major investor in Egypt.
The Empain group™s closest ties were with France, and its largest foreign
investments were there. In its international business, it hired French as well
as Belgian managers and engineers and used French along with Belgian
banking services. By 1913“1914, Empain was a global group, with a
complex maze of overlapping holding and operating companies with
interests in Argentina, Belgian Congo, Belgium, Brazil, Chile, China, Egypt,
France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Russia,
Spain, and Turkey.132
The European holding companies we have been considering were fre-
quently linked with one another in criss-crossing business groups.133 By the
time of World War I, the many holding companies in Europe usually tied
in with manufacturers, always involving banks, had been established to
¬nance, set up, and facilitate the development of tramways and electric
utilities across borders in continental Europe and in Latin America, with
occasional forays into Asia, North Africa, and sub-Saharan Africa.
German, Swiss, and Belgian universal banks were deeply engaged in these
developments, as were French investment banks (˜˜banques d™affaires™™).
Many of the holding companies were engaged in Unternehmergeschaft ¨
(that is, they had construction and engineering expertise internal to the
¬rm); others used outside construction and engineering expertise within a
loosely constituted group (with the groups varying in their cohesion); and
still others were purely ¬nancial holdings. Often, to repeat, there was a
combination of functions within a holding company “ that is, the holding
company would have ¬nancial holdings, exercise portfolio management,
and also have a direct investment in certain electrical activities where it
provided or hired the managerial talents.
Meanwhile, across the Atlantic, the holding company form for internat-
ional business was slower to evolve. Within the United States, from Thomson-
Houston™s United Electric Securities Company (1890) onward, there had been
holding companies that helped ¬nance domestic activities. Villard™s North
American Company (also 1890) had that goal.134 In 1904, General Electric
established Electrical Securities Corporation, and, more important, in 1905 it
formed Electric Bond and Share Company ˜˜to become an investment specialist
and engineering and service organization, providing expert services to oper-
ating companies.™™ Electric Bond and Share was primarily designed to hold
domestic investments, although in its original portfolio it did have interests in
three French Thomson-Houston companies and in Chatham & District Light
Railways (Chatham, England) and Lanarkshire Tramways Co. (London).135
Other substantial U.S. holding companies were formed for domestic
business.136 One that undertook U.S.-Canadian business was the Niagara
Chapter 3: Every City, 1880“1914 105

Falls Power Company, which desired a second source of power on the
Canadian side of the falls. It got consent of the Canadian and provincial
governments to locate and to construct a power plant inside the Queen
Victoria Niagara Falls Park. This subsidiary, Canadian Niagara Power Co.,
would supply power in New York State as well as in Ontario. The ¬rst power
was delivered January 1, 1905. This was one of the few instances of a holding
company™s subsidiary undertaking cross-border power exports back to the
parent.137
From Canada, outward foreign investments took the form in the main of
loose relationships between different ¬nancial groupings (as described above)
rather than a uni¬ed holding company edi¬ce. While Canadians had holding
companies that involved single-country relationships, as far as we can
establish, the ¬rst (1913) of the dedicated Canadian holding companies with
multicountry foreign investments appears to have been International Light &
Power Co. Ltd., Toronto, which had interests in public utilities in Argentina,
Mexico, and Venezuela. Its companies were managed by J. G. White & Co.,
a New York“based engineering consultant/construction ¬rm/contractor
about which we will have more to say.138

operating companies: clusters, engineering,
construction, and trading ¬rms
To operate a public utility in urban areas, a company typically would be
established that would get a concession from a government body. In inter-
national business, operating companies could be spun off from the electro-
technical manufacturing companies™ ventures.139 Financial institutions, in
their various con¬gurations, set up operating companies. Within enclave
communities, operating companies for public utilities were organized. Sepa-
rate operating companies were formed by large power consumers. Holding
companies also founded and acquired ongoing operating companies. Some-
times, as noted, holding companies were both holding and operating units. We
have seen all these origins.
Now is the time to turn to a sample of the hundreds of foreign-owned
operating companies, including those that were set up in a fashion other than
the above-mentioned forms.140 Often, in Great Britain operating companies
would be registered there to do business abroad. Directories offer long lists of
them. Many such companies were short-lived.141 Table 3.1 provides an
incomplete 1915 roster of British-organized or -controlled electric light and
power companies with properties located outside of the United Kingdom, the
United States, Canada, Latin America, and the Caribbean. The table reveals
the worldwide reach of such companies. Ostensibly, like most companies that
we have called ˜˜free standing™™ (see Chapter 2), all appear to be independent “
but that was not the case.
Global Electri¬cation
106

Table 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

Approx.
Location of Capitalization
Name property (in U.S. dollars)
Adelaide Electric Supply Australia 3,240,000
Co. Ltd.
Auckland Electric Tramways New Zealand 5,042,000
Co. Ltd.
Bombay Electric Supplies & India 9,878,000
Tramways Co. Ltd.
Burmah Electric Tramways & Burma (Myanmar) 1,000,000
Lighting Co. Ltd.
Brisbane Electric Tramways Australia 7,125,000
Investment Co. Ltd.
Calcutta Electric Supply Corporation India 5,000,000
Ltd.
Calcutta Tramways Co. Ltd. India 6,440,000
Cape Electric Tramways Ltd. South Africa 4,479,000
Capetown Consolidated South Africa 3,750,000
Tramways & Land Co. Ltd.
Colombo Electric Tramway & Ceylon (now Sri 1,254,000
Lighting Co. Ltd. Lanka)
Delhi Electric Tramways & Lighting India 858,000
Co. Ltd.
East India Tramways Co. Ltd. India 500,000
Electric Supply Co. of Victoria Ltd. Australia 2,267,000
Electricity Supply Co. for Spain Ltd. Spain 1,182,000
Hankow Light & Power Co. Ltd. China 100,000
Hong Kong Tramway Co. Ltd. China 1,295,000
Huelva Gas & Electricity Co. Ltd. Spain 279,000
Hydro-Electric Power & Tasmania (an 3,337,000
Metallurgical Co. Ltd. Australian state)
Indian Electric Supply & India 715,000
Traction Co. Ltd.
Kalgoorlie Electric Power & Lighting Australia 1,300,000
Corporation Ltd.
Kalgoorlie Electric Tramways Ltd. Australia 1,999,000
Lisbon Electric Tramways Ltd. Portugal 7,780,000
Lobito Benguilla & Catembella South Africa (sic) 908,000
Electric Light & Power Co., Ltd.
Madras Electricity Supply Co. Ltd. India 2,942,000
Madras Electric Tramways Ltd. India 1,088,000
Chapter 3: Every City, 1880“1914 107


Approx.
Location of Capitalization
Name property (in U.S. dollars)
Malaga Electricity Co. Ltd. Spain 500,000
Malta Tramways Ltd. Malta 715,000
Melbourne Electric Supply Co. Australia 4,800,000
Ltd.
Melbourne Tramway & Australia 4,800,000
Omnibus Co. Ltd.
Nairobi Electric Light & Power Co. (British) East 250,000
Ltd. Africa
(now Kenya)
North Melbourne Electric Australia 1,661,000
Tramways & Lighting Co. Ltd.
Rangoon Electric Tramway & India 3,600,000
Supply Co. Ltd.
Shanghai Electric Construction China 1,680,000
Co. Ltd. (tramway)
Singapore Electric Tramways Ltd. Straits 1,863,000
Settlements
South African Lighting Association South Africa 575,000
Source: U.S. Federal Trade Commission, Report on Cooperation in the American Export Trade
(Washington, DC, 1916), II, 543“44. The locations, except those in parentheses, are as given in
this source. In one place we have put a sic after South Africa because of an error in the source:
this should have been southern Africa or Portuguese East Africa (now Angola). We have
con¬rmed in Garcke, 1914“1915, that Malta Tramways and East India Tramways were
electri¬ed and that South African Lighting provided both gas and electric power. We have
made very minor corrections in the titles of companies. To the best of our knowledge, all the
companies included were controlled by nonresident British owners; we have not included any
company known to be controlled by Germans (or other nationalities) in the locale of doing
business.



Frequently, operating companies were clustered in informal (or formal)
groups. Thus, for example, the Melbourne Electric Supply Co. Ltd. and the
Adelaide Electric Supply Co. Ltd., at origins and throughout their history,
were associated with the same set of British ¬rms. Joseph Bevan
Braithwaite, MIEE (Member of the Institution of Electrical Engineers), was
listed on the board of each company. The ˜˜head of¬ce™™ of each was at
Finsbury Pavement House, London. When the two Australian companies
were set up in 1908 and 1905, respectively, Braithwaite (1855“1934) had
long been engaged with English electric utilities. In 1893, his application for
membership in the U.K. professional society for electrical engineers, the
Institution of Electrical Engineers read: ˜˜In 1882 I became chairman of the
Great Western Electric Light & Power Co. and during the two or three
years that I held that position I devoted much time to the development of
Global Electri¬cation
108

early electric lighting stations at Bristol and Cardiff. . . . [M]y ¬rm [the
stockbrokers Foster & Braithwaite] were largely instrumental in obtaining
the capital for the City of London Electric Lighting Co. . . . As a director of
the Electric & General Investment Trust . . . I have been able to render
valuable ¬nancial assistance.™™ The Melbourne Electric Supply Co. Ltd.
(1908) was the successor to the 1899 English-registered Electric Lighting
and Traction Company of Australia Ltd. (which had brought together
several Melbourne-based utilities). The Adelaide Electric Supply Company
Ltd. was formed afresh in England in 1905.142
The companies associated with British Electric Traction Co. (BET), the
largest private tramway and motor bus company in the United Kingdom,
were tied in with another overlapping cluster, approximating that of a
multinational enterprise. BET was formed in 1895 (the issuing house was
Electric & General Investment Trust). In 1899, when its af¬liate Auckland
Electric Tramways Co. Ltd. (New Zealand) was organized, BET already
had developed operations in the United Kingdom and was well acquainted
with this business. The Auckland company combined tramway services and
electricity supply. It was separately set up (and ¬‚oated) within the United
Kingdom, with BET the largest single investor.
Consider the important Bombay Electric Supplies & Tramways Co. Ltd.
(India). It came into being in 1905 in India and the United Kingdom (with a
pattern of dual boards common among free standing companies); it was the
successor to and broadened the functions of the earlier Bombay Tramway
Co., which in 1901 had been purchased by the British ¬rm Anglo-American
Brush Electric Light Corporation. In a complex transaction, the 1905
Indian company was promoted by BET, which retained a smaller stake in it
than it held in the just discussed Auckland venture. Electric & General
Investment Trust was involved, purchasing ˜˜debenture stock™™ from BET
and offering that Bombay Electric stock for sale in the United Kingdom.
Raphael Schapiro found, in his scrutiny of BET records, that after these
transactions in 1907 BET owned two-thirds of the ordinary stock and one-
third of the preference shares of Bombay Electric; BET participated in
managerial decisions and had two seats on the board of directors of
Bombay Electric. The company was run from England and did business in
British pounds. Anglo-American Brush Electric Light Corporation had
come to concentrate on the manufacture of traction equipment and from
the end of 1896 had worked closely with BET; by 1906, if not earlier, BET
had obtained control of Anglo-American Brush Electric Light.143
In addition, BET had minority ¬nancial interests in a number of other
operating companies “ for example, the Buenos Ayres and Belgrano
Tramway Company Ltd. and the Anglo-Argentine Tramways Co. “ as well
as tramway and light and power companies in Australia, Canada, and
China, where it did not provide managerial expertise.144 The latter were
part of its ¬nancial portfolio, although its expertise in the ¬eld directed it to
Chapter 3: Every City, 1880“1914 109

invest in these activities. And to add to the network (as we pointed out
much earlier in this chapter), the stock brokerage ¬rm Foster & Braithwaite
was active in the parent, BET.
As noted, Table 3.1 does not include the numerous companies in Latin
America.145 It also omits the many free standing British gas companies that
by 1915 had developed electrical as well as gas concessions. This was true
of the large and important Imperial Continental Gas Association (ICGA),
with a 1915 capitalization of $30,875,000 (denominated in pound sterling),
and operating companies in Austria, Belgium, France, Germany, and The
Netherlands146 ICGA began with gas concessions and then combined gas
and electricity. Since its origins in 1824, it had internalized engineering
talents that could be spread over each public utility project.
What Table 3.1 does is push us to uncover the varieties in modes of
operations of British-registered companies that operated abroad: with some
in a cluster surrounding a key stockbroker/engineer; with others ¬tting
more into the model of a classic multinational enterprise (as with the
activities of tramway and motor bus company in the United Kingdom); and
with some emerging from prior activities in gas.
Indeed, as we peruse the operating companies “ British and others as
well, if they seem to be free standing “ it is often possible to ¬nd a cluster of
related ¬rms. All operating companies required engineering and construc-
tion talents. Such activities could be fully or partly ˜˜internalized™™ within
the parent ¬rm, as in the Unternehmergeschaft model. Other times, joined
¨
in with this expansion were separate outside (otherwise independent)
engineering and/or construction companies “ including, for example, the
German ¬rm Philipp Holzmann. When, as a case in point, Deutsch-
¨
Uberseeische Elektrizitats Gesellschaft (DUEG), Berlin, developed the
¨
Buenos Aires light and power facilities, it contracted with Philipp Holzmann
to build the plants and distribution networks, using materials and equipment
imported from Germany.147 So, too, by 1913“1914 the French construction
company Societe Generale d™Entreprises (SGE), which specialized in erecting
´´ ´ ´
electricity supply facilities, did roughly half of its business outside France.
SGE developed a far-¬‚ung international business, from Russia to Italy and
farther a¬eld. Its subsidiary Societe Generale d™Entreprises dans l™Empire
´´ ´ ´
Ottoman had twelve branches with ten thousand employees in Turkey.148 In
´
1911, SGE founded the Societe Ottomane d™Electricite de Constantinople
´´ ´
149
(SOEC).
Sometimes, it was engineering/construction ¬rms that took the lead in
the establishment of free standing companies. In Great Britain, a group of
builders and construction ¬rms had long taken part in infrastructure
investments on a global basis. Some took the initiative in the organization
of free standing companies in electric utilities. This was the case of the
important British ¬rm S. Pearson & Son, about which we will have a great
deal more to say when we consider developments in Mexico.
Global Electri¬cation
110

In the United States, an important avenue for involvements in operating
utilities abroad lay in the entrepreneurial activities of construction/
engineering enterprises. Stone & Webster and J. G. White & Co. are two
key examples. Before undertaking overseas projects, both of these ¬rms
obtained experience with ¬nancing electric light and power companies
domestically in the United States. Stone & Webster started as consulting
engineers in 1889; the ¬rm moved into construction; it became a participant
in managing and supervising public utilities; it developed the ability to raise
capital for utilities; it took on the roles of underwriter and investment
banker, and it transmitted these talents to the international arena. By 1913,
Stone & Webster had of¬ces in twenty-¬ve U.S. states and in Canada and
the West Indies.150 So, too, the New York“headquartered J. G. White &
Co., which specialized in electric power construction engineering, came to
combine this with the management of utilities and dealing in securities. In
the United States, it was identi¬ed with the holding company Associated
Gas & Electric.151 In 1903, together with Speyer & Co. and Westinghouse
Electric & Manufacturing Co., J. G. White & Co. obtained a concession to
build street railway and lighting plants in Manila, The Philippines. That
year, the White ¬rm took part in constructing Dutch street railways, and by
1905 it was participating in electrical projects in England, Ireland, Mexico,
and in various parts of South America.152 In 1906, the Canadian company
Royal Securities joined with White to develop a major power project in
Puerto Rico.153 By 1913, White was deeply involved in designing and
constructing electric light and power plants as well as street railways; for
this purpose, it had of¬ces in London, and in Argentina, Brazil, and
Chile.154 When in 1913 International Light & Power Co. Ltd., Toronto,
was established, as we have noted earlier, the White ¬rm became manager
of its operating companies in Argentina, Mexico, and Venezuela.155
Many of the Canadian promoters of free standing operating companies
in Latin America used the New York“based F. S. Pearson ¬rm for engi-
neering services. Fred Stark Pearson (1861“1915) was often the key indi-
vidual in electric utilities developed under Canadian registration in Latin
America and then in Spain “ for instance, when the Canadians formed
Barcelona Traction, Light and Power in 1911.156 Pearson was frequently
described as the driving force in these projects.157 As part of the bundle of
¬rms taking part in the international spread of operating companies before
World War I, it is necessary to include trading companies. These well-
established ¬rms were familiar with the areas in which they traded; they
knew about handling and ¬nancing trade in equipment; they could provide
information of a very specialized kind. Thus, in 1898, when the Brasilia-
nische Elektrizitats-Gesellschaft, Berlin, was organized, participants
¨
included (1) Theodor Wille (a German import-export house), (2) the
Deutsche Bank, and (3) the Siemens holding company Elektrische Licht und
Kraftanlagen, AG (ELK). Both the Deutsche Bank and ELK also served in
Chapter 3: Every City, 1880“1914 111

other clusters in pursuing international business in utilities.158 Additional
trading companies involved in the networks surrounding operating com-
panies in electricity supply ventures included, for example, the British
trading company Anthony Gibbs & Co. In the early 1880s, Gibbs was
reported to be the principal participant in the British free standing company
Mexican Gas and Electric Company.159
This barely skims the surface. What is important is that in the estab-
lishment of operating companies there were different foreign initiators and
a bevy of out-of-country participants. This becomes clearer when we con-
sider foreign-owned operating companies in certain key countries where
foreign owners played a dominant role.

operating companies in latin america (mexico in
particular) and europe (russia in particular)
European- and North American“owned operating companies were active in
Latin America. British free standing companies were particularly in evi-
dence. Wherever there had been gas companies, electric companies fol-
lowed. Electricity found its way to market, often through preexisting utility
companies that provided other infrastructure services. Water, gas, tram-
way, and telephone companies served as conduits for electrical services in
Latin America as well as elsewhere around the world. It was very evident in
the case of tramways. Early, unelectri¬ed tramway concessions became
electri¬ed. Often, the line between tramways and electric light and power
companies was indistinct “ sometimes concessions were for both; some-
times they were separate. A study of electric light and power by necessity
deals with tramways.
In each country of the world, but particularly in Latin America, there
were sequences in the electri¬cation process from new entries to mergers
and consolidations. Municipalities might give concessions for only part
of a city, and they might give nonexclusive concessions. Firms of one
nationality might be followed by those of another nationality. The com-
plexities were not only in clusters of initiators and participants, but in the
very sequencing of the investments. Within a single country, because
typically the concession was for a single geographic area, ˜˜monopolies™™
were con¬ned to that part of the city, that city, or that region. (Even if
concessions were nonexclusive, existing companies tended to divide up
areas of service.)
In Latin America, a large number of foreign companies participated in
supplying electricity. Different industries and cities within these countries
attracted different “ or overlapping “ investors. The networks, the pyramids
of companies, the sequencing, and the interactions of individuals of various
nationalities meant that the combinations and permutations at times
seemed overwhelming.
Global Electri¬cation
112

Mexican electri¬cation “ which came to be dominated by foreign concerns “
illustrates many of the tangled relationships of the various operating
companies. Historians Reinhard Liehr and Georg Leidenberger found that
the earliest electri¬cation in Mexico began in 1879, as cotton mills and
mining and re¬ning activities acquired generators related to their industrial
activities.160 In Mexico City, the British-registered Mexican Gas and
Electric Light Co. Ltd. set up between 1881 and 1888 the ¬rst system of
electric street lamps. They were of the Brush type. However, not until
February 1894 were the ¬rst lights actually shining.161 The system was not
satisfactory, and on December 15, 1896, the Mexico City municipal council
signed a contract with the German ¬rm Siemens & Halske to introduce
a second public lighting system.162 In 1897, the Germans formed the
Mexican Electric Works Ltd., London, a free standing company, with one-
quarter of the capital owned by Siemens & Halske and Indelec (its Swiss
holding company) and three-quarters by the Dresdner Bank. It did well,
offering strong competition to the Mexican Gas and Electric Light Co.163
The next step involved a Halifax (soon to become a Montreal) group of
investors, with the American engineer F. S. Pearson. This group obtained
key waterpower concessions in Mexico in 1902 and organized the Mexican
Light and Power Co. Ltd., incorporated in Canada.164 Quickly, under
Pearson™s initiative, Mexican Light and Power Co. was ˜˜metamorphosed
from a marginal speculation into a property controlled by the leading
men of Canadian ¬nance.™™ The new company had among its directors,
E. S. Clouston, then general manager of the Bank of Montreal, and George
Drummond, who became president of that bank in 1905. The ˜˜cluster™™ of
men involved included the very wealthy James Ross, who was a participant
in Canadian utilities as a contractor; a number of key Canadian railroad
entrepreneurs; and E. R. Wood, the prominent stock broker associated with
Dominion Securities.165 In July 1903, the Mexican Light and Power Co.
acquired from the Germans the Mexican Electric Works Ltd., which
resulted in Canadian control of this prominent ¬rm, which by this time led
in providing electric power to Mexico City. In the transaction, the prior
owners obtained the right to appoint two board members: Those selected
were Arnold Ellert, London manager of the Dresdner Bank, and Alfred
Berliner of Siemens & Halske.166 Siemens & Halske continued to receive
orders to supply generators to the Canadian-controlled company. In 1905,
the Mexican Light and Power Co. established a new Canadian subsidiary,
Mexican Electric Light Co., which in turn purchased the Mexican Gas and
Electric Light Co., as well as another locally owned, but So¬na-¬nanced,
Mexican company, La Compan±a Explotadora de las Hidro-Electricas de
˜´ ´
167
San Ildefonso. Mexican Light and Power Co. would make further
acquisitions in Mexico in 1907“1910, in the process integrating and
modernizing the facilities.168 Encouraged by the opportunities in Mexico,
on May 6, 1906 the Bank of Montreal set up a branch in Mexico City.
Chapter 3: Every City, 1880“1914 113

Clouston declared Mexican investments were safer than in Canada.169 The
Bank of Montreal in 1905 had guaranteed a million-dollar underwriting for
the Mexican Light and Power Co. and also made an $800,000 loan to the
company.170
Meanwhile, in 1882 a Mexican group had established the Compan±a ˜´
Limitada de Ferrocarriles del Distrito (CLFD), which combined a number
of tramway companies formed since the 1870s.171 CLFD was acquired by
the British merchant bankers Wernher, Beit & Co. in 1896 and subse-
quently began electri¬cation of streetcar service in Mexico City (although
the ¬rst line was not electri¬ed until 1900).172 In 1898, an English free
standing company, Mexican Electric Tramways Ltd. had been organized, a
company in which Wernher, Beit had a substantial interest.173 It apparently
acquired CLFD.174 Armstrong and Nelles tell an extraordinary story of
how in 1906 (the same year Alfred Beit died) Canadian interests (along with
F. S. Pearson) took over Mexican Electric Tramways. The entire Montreal
group already participating in the Mexican Light and Power Co. was not
interested at this time, so Pearson assembled a separate (albeit overlapping)
set of Canadian and European investors. Clouston of the Bank of Montreal
remained involved. The Canadian-incorporated Mexico Tramways Com-
pany Ltd., headquartered in Toronto, acquired Mexican Electric Tram-
ways. Participating in this new activity were the Belgian entrepreneur
Alfred Loewenstein and the British trust company pioneer, now London-
based, Robert Fleming.175
Armstrong and Nelles explain the relationships between the two sizable
Canadian-incorporated companies, Mexican Light and Power Co. and
Mexico Tramways Co. In 1909, Pearson, as a participant in both ventures,
arranged a hostile takeover by Mexico Tramways Co. of the Mexican Light
and Power Co. The two ¬rms technically stayed separate, but they would
subsequently be managed jointly.176
Canadians took on the management of these Mexican companies, in
cooperation with Pearson, while at the same time they were able to tap
British capital markets in an effective manner. Investors in England were
assured by the Canadian registration and by the Canadian participants that
these were ˜˜safe™™ investments. The Canadian domicile provided comfort
and security to the ˜˜portfolio™™ investors, who were not only English but
came from the European continent as well. The corporate structure offered
a way of raising large amounts of capital required for the undertakings.
Before 1914, these were not the only foreign-owned and -run electric
power companies in Mexico. There was, for example, the Guanajuato
Power and Electric Co., set up by Americans in 1902 in a silver- and gold-
mining area of Mexico. This was one of the earliest “ or perhaps the earliest “
ventures of William P. Bonbright in electric utilities. In 1903, Stone &
Webster organized the El Paso Electric Co., which provided electric light-
ing, power, and traction in both El Paso and across the border in Ciudad
Global Electri¬cation
114

Juarez, Mexico. In other parts of Mexico, there was the Monterey Railway,
Light & Power Co. Ltd., formed in Toronto in 1905, and there was also the
U.S.-owned Compan±a Hidroelectrica de Chapala to service the Guadalajara
˜´ ´
177
region. Compan±a Hidro-Electrica del Rio de la Alameda SA was organized
˜´ ´
in 1909 by a French group to provide power for textile factories in Mexico
City.178 Some Canadians “ including E. B. Greenshields, Edwin Hanson, and
G. F. Greenwood from Montreal; the lawyer/promoter B. F. Pearson and
the contractor S. M. Brook¬eld from Halifax; entrepreneur and manufacturer
S. J. Moore from Toronto; and John D. Paterson from Woodstock, Ontario “
established in 1909 the Mexican Northern Power Company to develop the
Conchos River in the Mexican state of Chihuahua and to provide electricity to
mining towns and cities in that state.179
In addition, there was the coincident and extremely important collection
of ventures of Weetman D. Pearson (not to be confused with F. S. Pearson
or B. F. Pearson).180 Weetman Pearson™s family ¬rm was S. Pearson & Son,
a London-headquartered construction company, with contracts all over the
world. By the end of 1889, that ¬rm was involved in dock, harbor, and
railroad tunnel construction in Egypt, Nova Scotia, and the United States;
in December of that year, it got its ¬rst Mexican contract, a contract for the
Grand Canal. The president of Mexico, Por¬rio D±az, met with Weetman
´
Pearson, and the contract was rapidly negotiated. This was the start of a
deep involvement in Mexico for Pearson, as well as a close friendship with
the Mexican president.181 One project led to another. The perils of getting
construction materials landed in the treacherous harbor in Vera Cruz led to
a contract to improve the harbor. While that work was underway, in 1901,
S. Pearson & Son obtained a contract for drainage and water supply at Vera
Cruz.182 Then, in 1906 D±az asked Pearson to take over the locally owned
´
tramway system in Vera Cruz and electrify it. Pearson received a concession
from the municipality and organized the Vera Cruz Electric Light, Power
and Traction Ltd.183 According to his biographer, J. A. Spender, this was
Weetman Pearson™s ¬rst entry into construction related to electri¬cation.
For advice, Pearson turned to Alexander Worswick, a Canadian, who was
the engineer on the spot in Mexico City, acting for Mexican Electric
Tramways. (Worswick had been the resident engineer on behalf of the
Wernher, Beit group.) Pearson followed Worswick™s advice and did not
restrict his activities to traction, but acquired and reconstructed the existing,
though rather primitive, electric light and power business in Vera Cruz. John
Young of Chicago had earlier set up El Portezuelo Light and Power Com-
pany, incorporated in Illinois. Pearson formed the Anglo-Mexican Electric
Company Ltd., a free standing company registered in England in 1906 that
took over the El Portezuelo company. Pearson also obtained an interest in the
Canadian-incorporated Puebla Tramway, Light & Power Co. Ltd. and sold
shares in Anglo-Mexican Electric to this ¬rm. S. Pearson & Son, Weetman
Pearson, and Worswick retained debentures in Anglo-Mexican Electric.
Chapter 3: Every City, 1880“1914 115

Listed among the debenture holders in this British-registered ¬rm in 1909
were two Germans: ˜˜Luebeck and Ellert.™™ We are unable to identify Luebeck
(he might have been associated with Siemens & Halske). Arnold Ellert was
the London manager of the Dresdner Bank, and we have come across him in
connection with the Mexican Light and Power Co. During 1909, Anglo-
Mexican Electric acquired bonds and shares of Puebla Tramway Light and
Power. The two were obviously closely associated, each owning shares in the
other.184
This was just the beginning of Weetman Pearson™s forays into electri¬-
cation: Soon other light and power projects in Mexico attracted his
attention.185 In Nova Scotia in the 1880s, Pearson had become friends with
the Halifax contractor S. M. Brook¬eld. Years later, the two worked
together in Mexico: S. Pearson & Son got a construction contract with
Mexican Northern Power Co. in 1909; we have noted earlier that Brook-
¬eld was one of the investors in this company.186
As Weetman Pearson became active in various Mexican electri¬cation
projects, he was also becoming a major player in the Mexican oil indus-
try.187 Worswick advised Pearson to buy the tramway system and the two
competing electric light companies in Tampico, the center of the Mexican
oil industry boom. It is not exactly clear when this purchase took place, but
it appears to have been during the Por¬rio D±az administration, which came
´
188
to a close May 25, 1911. A new English company, the Tampico Electric
Light, Power & Traction Co. Ltd. was incorporated in 1912. Pearson was
involved in other Mexican projects as well, among them one at Orizaba,
where Pearson had built a power station for a local jute mill in 1906.189
Weetman Pearson shared Por¬rio D±az™s desire to modernize Mexico.
´
After Por¬rio Diaz™s ouster in 1911, the Mexican revolution continued,
with its succession of Mexican leaders, uncertainties, disruptions, and
physical damage to properties. Pearson (made Lord Cowdray in 1910)
remained as a large investor in Mexico, as did the Canadian groups
involved in electrical light and power. But the con¬dence that the Bank of
Montreal had expressed in 1906 had waned, and losses appeared on the
¬nancial statements of some of the companies participating in electric utilities
in Mexico.190 By 1914, there were ¬ve sizable Canadian-incorporated
ventures in Mexico: Mexico Tramways Co., Mexican Light & Power Co.,
Mexican Northern Power Co., Puebla Tramway, Light & Power Co., and
Monterey Railway, Light & Power Co., along with the other, principally
British-incorporated, free standing companies “ in the main, Lord
Cowdray™s companies. There were some U.S.-owned companies as well.
In 1913, the International Light & Power Co. Ltd. had been set up, the
¬rst of the Canadian holding companies. It acquired a small existing power
plant in Merida, Yucatan, Mexico (Compan±a de Electricidad de Merida
˜´
became its operating company), with J. G. White & Co. as manager.191 The
vast expansion of electric utilities in Mexico “ which had occurred during
Global Electri¬cation
116

the era of Por¬rio D±az and came to a close in 1911 “ took place to aid
´
industry, to light up cities, and to electrify tramways. There was nothing
approximating a ˜˜national™™ system. Separate companies served individual
cities and regions, although there was some regional integration.
Miguel S. Wionczek writes that of the approximately two hundred
concessions granted or con¬rmed by the Mexican central government
between 1895 and 1910, the vast majority had gone to Mexicans, who
rapidly sold them to foreign investors. Why? Because foreign investors had
the know-how and ability to develop power facilities, as well as access to
capital for this very capital-intensive industry.192
While the progress of foreign companies in Mexico was shaped by
Por¬rio D±az™s attempts to modernize the nation and the ˜˜age of electricity™™
´
came to Mexico ˜˜with remarkable speed,™™ the foreign direct investment
story mirrored parallel developments elsewhere in Latin America and
worldwide, although the national actors and forms of multinational
enterprises in each case represented a different set of con¬gurations.193
In Europe, a large number of companies that were foreign-owned and
-controlled participated in electri¬cation. This was particularly true in Italy
and Spain, but also in Central and Eastern Europe and in Greece. Russia
provides an important example of the diffusion of electricity vis-a-vis `
multinational enterprise. As in Mexico, Russian electri¬cation came rapidly
and soon was dominated by foreign direct investors. Siemens & Halske had
long done business in Russia, so it set up an electricity supply company: the
Company for Electric Lighting, known as the 1886 Company. It was the
¬rst commercial electric utility in Russia, and it built a thermal plant in
St. Petersburg. Note that this was a decade before Siemens & Halske™s
participation in Mexico, and, as in Mexico, this was a typical manu-
facturer™s satellite.
Shares of the 1886 Company were quoted on the Berlin stock exchange
and subsequently on the St. Petersburg stock exchange. The key German
banks participating were the Deutsche Bank, the Bank fur Handel und
¨
Industrie, and the Mitteldeutsche Credit Bank. The 1886 Company, the
largest and most prominent of the foreign-owned Russian public utilities,
came to hold ownership interests in electric light and power companies
in Moscow, Nishni Novgorod, Riga, Baku, and Lodz. In the late 1890s,
´´
Societe Generale, Brussels “ through the Belgian holding company Societe
´´ ´ ´ ´´
´ lectriques (SGB) and in cooperation with
Generale Belge d™Entreprises E
´´
some German banks “ obtained concessions to supply electric power in
St. Petersburg (in competition with the 1886 Company). For this purpose, it
organized the operating company: the Company for Petersburg™s Electric
Lighting (CPEL). Societe Generale, Brusssels, was also involved in the
´´ ´ ´
´
Belgian-registered Compagnie Centrale d™Electricite de Moscou, a ¬rm that
´
attracted French capital, through the intermediation of Societe Generale
´´ ´ ´
pour Favoriser le Developpement du Commerce et de l™Industrie en France
´
Chapter 3: Every City, 1880“1914 117

and the Banque des Pays du Nord. In addition, So¬na acquired interests in
various Russian utilities. For example, it was involved in the foundation
´
(through the Societe Centrale pour l™Industrie Electrique [SCIE], Paris) of
´´
´
the Societe d™Electricite d™Odessa; it, too, participated in the Compagnie
´´ ´
´ lectricite de Moscou. AEG was represented in Russia through
Centrale d™E ´
its interests in SGB and So¬na. And then, as noted earlier, Empain had
interests in Russian tramways and in light and power companies. To add to
the complexity, in 1899 the syndicate Russiches Syndicate fur Elektrische
¨
Unternehmungen was formed by Siemens, AEG, and UEG (soon to be
acquired by AEG) to develop electrical undertakings in Russia. Siemens™s
and AEG™s involvements “respectively, in Indelec and Elektrobank “ in
Switzerland meant it would not be long before the Swiss holding companies
held a tranche in Russia. Both acquired securities of the 1886 Company. In
1914, the Basler Handelsbank (key in Indelec) had a representative on the
board of the 1886 Company, as did the Credit Suisse (the principal Swiss
bank in Elektrobank). The French Rothschilds, who were deeply involved
in the development of the Russian oil industry, became participants in the
Russiches Syndicate and its electri¬cation activities in Baku. Earlier, we
noted the investments of the manufacturer French Thomson-Houston in
´ ´
Energie Electrique de Bakou. So¬na was likewise a participant in the
electri¬cation of the Baku region.
By the early 1910s, the 1886 Company and CPEL were no longer
competing but rather cooperating in developing hydroelectric power in
St. Petersburg. Another sizable investor in Russia beginning in the 1890s was
the German manufacturing company Helios, which became the leader in
Petersburger Gesellschaft fur Electroanlagen (PGE). In 1913, when Helios
¨
went out of business, the ownership of its Russian af¬liate was reorganized,
and Belgian and French investors took over. PGE became the Societe Saint-
´´
´ lectrique de la Force des Chutes d™Eau
Petersbourgeoise de Transmission E
(SSPT). Meanwhile, Siemens-Schuckertwerke had set up the Kiev Electric
Company. In November 1912, Elektrobank and Indelec participated in
Imatra, a giant venture organized in Brussels, with Swiss, Belgian, and
Russian capital (30 million francs) and with plans for a central hydroelectric
power station in Finland that would distribute energy in Finland and in the
St. Petersburg region. (The reader will remember that at this time the Grand
Duchy of Finland was part of the Russian empire.) The Imatra waterfall on
the Upper Vuoksi River in Finland was a scenic spot, comparable to Niagara
Falls. Serge Paquier writes that the participation in the Imatra project (which
never materialized) re¬‚ected a new spirit of cooperation between the Swiss
and Belgian holding companies; in each case, the participating companies
were partly controlled by the German groups.
This is barely an introduction. But we can conclude that a labyrinth of
German electrotechnical companies and banks, Belgian holding companies
and banks, Swiss holding companies, French banks, and at least one French
Global Electri¬cation
118

manufacturer were engaged in seeking to develop and actually developing
light and power facilities in Russia. Belgian tramway operations, including
many by Empain, proliferated in Russia. Sometimes these were linked to
(and sometimes not) the light and power activities. Whereas German
interests dominated light and power facilities, in tramways the Belgian
groups were supreme. By the eve of World War I, 90 percent of the light
and power produced in Russia came from facilities of foreign companies.194
Each host country around the world had a distinct mix of foreign
investors. And within each host country, various cities attracted different
con¬gurations of such investments. We could tell countless other stories
about each country in Latin America. Whereas Mexico came to be domi-
nated by Canadian and British ¬rms in electric utilities (with some U.S.
¬rms, especially enclave form companies), that pattern was not general for
Latin America. Mexico was not the model. Prosperous Argentina, for
example, which attracted giant foreign involvements, had a more contin-
uous and far more substantial German presence. The Chilean story is yet
another case, with some of the same players; as in Argentina, the German
role in Chile was very large. Each Latin American country went through a
different course of electri¬cation and had a different mix of foreign invol-
vements.
Similarly, Russia was not the model for Europe, where the pattern of
foreign operating companies once again varied by nation. For example,
Spain, which also attracted heavy foreign direct investments, represented a
separate set of experiences, with many of the same players involved, but
with an important Canadian ¬rm not present in Russia. Greek electri¬ca-
tion had major French involvements, far greater than in Russia. In Europe,
as in Latin America, the forms used by inward foreign investors varied
according to each host nation (and also often according to particular cities
within the host nation). Within Europe, as in Latin America, the nationality
˜˜mix™™ (Belgian, British, Canadian, French, German, Swiss, and U.S., for
the most part) of the foreign ownership and control of the operating
companies took on unique characteristics, depending on the host locale,
although there were clear, overlapping networks of participants in what
were global involvements. Indeed, the tissue of multinational enterprises™
relationships with the operating companies in public utilities was not
con¬ned to Latin America and Europe.

¬nance
Thus far, we have concentrated our attention on the various actors involved
in foreign direct investments in public utilities in the years before 1914. At
the same time, a substantial amount of international investment did not
carry ownership and control “ that is, it was purely ¬nancial. Some of it
dovetailed with the direct investments, for frequently direct investors in this
Chapter 3: Every City, 1880“1914 119

capital-intensive sector sought outside ¬nancing for their projects. Lance
Davis and Robert Gallman note that between 1906 and 1914 the capital
¬‚ows from the United Kingdom into Canada (measured by calls on capital)
that went to electric light and power companies included Vancouver Power,
Calgary Power, Cascade Water Power, and a number of others, with the
largest single light and power company recipient, Toronto Power, with
sixteen calls that totaled $10 million. Of the light and power companies
listed by Davis and Gallman, only one was a British direct investment
(Vancouver Power being a subsidiary of British Columbia Electric
Power).195
The Canadian-registered companies that operated in Latin America also
drew on British portfolio investors: Bonds were ¬‚oated in London and often
sold elsewhere as well. A report issued by Dominion Securities Corporation,
Toronto, found that bonds issued by these Canadian-registered corporations,
1909 through 1913, came to $120.5 million, of which only $7.2 million were
taken up in Canada.196 While typically Canadians went to British capital
markets, this was not always the case. When the Toronto group set up a free
standing company in Spain in 1911 “ the Barcelona Traction, Light and
Power Company Ltd. “ the distribution of the bonds was divided one-third
Belgium and France, one-third England, and one-third Canada.197 We must
beware of ˜˜double counting.™™ When there was a direct investor running the
show, as in this Spanish example, we should identify the corporate structure
and consider the entire investment as owned and controlled by the direct
investor. Swiss and Belgian holding company structures also contributed
greatly to the abilities of operating ¬rms to use international capital markets.
As in the Canadian cases, the security of a ˜˜metropolitan™™ country head
of¬ce provided the means for tapping capital markets beyond those within
the headquarters™ country.
The direct investments of British free standing companies achieved the
same goal. Thus, the Lima Light, Power and Tramways Co. “ formed in
1910 as a British free standing company and designed to acquire and merge
a number of existing utilities in Lima, Peru “ was able, because of this
British corporate structure, to raise substantial funds through capital
markets. The British banking house J. Henry Schroder & Co. sponsored an
¨
issue of £1.2 million debentures for Lima Light (known in Peru as Empresas
Electricas Asociadas). The issue was offered by Schroder in London and by
´ ¨
Schroder Gebruder in Hamburg; the bonds were also made available in
¨ ¨
Belgium and Switzerland.198
Belgium, Canada, and Switzerland “ key locales for holding companies
and registered companies “ did not have ˜˜deep™™ stock markets in these
years. Domestic and foreign entrepreneurs, however, were able to take the
operating companies directly (in the Canadian case) and through the
holding company structures (in the Belgian and Swiss cases) to more robust
securities markets. As indicated earlier, an important reason Credit Suisse
Global Electri¬cation
120

provided the president for Elektrobank lay in the ability of the Swiss to tap
French and English capital markets. The Belgians used mostly French
capital, as well as mobilizing capital in many other countries where they
had investments.199 In short, the companies registered in these countries
could draw on the capital surpluses in England, France, and Germany.
Before 1914, the London stock market was a truly international market,
while those on the continent were international to a lesser, but important,
extent. The availability of securities markets for purely ¬nancial transac-
tions aided both multinational enterprises and purely domestic ¬rms.
Multinational enterprises through the various business groups could retain
control, while obtaining funds from numerous share and bond holders.
Aside from the very early years, there was minimal inward foreign direct
investment in U.S. electric utilities; by contrast, the foreign ¬nancial par-
ticipation in U.S. utilities was far from trivial. Cleona Lewis records that
Cities Service, St. Lawrence Power (Massena, New York), American Water
Works and Electric, Consolidated Gas & Electric Light & Power of
Baltimore, Great Western Power, Middle West Utilities, and Mississippi
River Power were among the U.S. utilities listed on one or more European
stock exchanges in 1914.200 The principal investor in Illinois Traction
Company was the Canadian Sun Life Assurance Company. As noted ear-
lier, the Canadian-incorporated Alabama Traction Light and Power
Company Ltd. gave the critical ¬nancial assistance needed for Alabama
Power Company. U.S. ¬rms used international ¬nancial markets to obtain
¬nancing, but the ¬rms™ management was American.201
The Japanese sought foreign ¬nancing. There were no foreign direct
investments in the Japanese electric utilities, although there was one project
proposed that might have taken that form but that failed to materialize.202
The Japanese did get some short-term foreign ¬nance, but they were unable
to obtain any long-term foreign ¬nancing before World War I. Japanese
entrepreneurs did, however, move forward with building electric utilities,
considerably faster than anywhere else in Asia. Domestic sources provided
the basic ¬nancing and managerial control.203

the status of multinational electrical investments
on the eve of world war i
In the United States, there was inward foreign ¬nance and major utilities
(holding and operating companies) that were traded on securities markets
abroad. On the other hand, in 1914, by our de¬nition, within the United
States there was virtually no inward foreign direct investments.204 Within
the vast American nation, the process of electri¬cation had been accom-
plished in the major cities. In rural areas and mining camps, isolated plants
¬lled some of the needs, but large numbers of Americans still had no access
to electricity. As for outward foreign investments, the electrotechnical
Chapter 3: Every City, 1880“1914 121

giants General Electric and Westinghouse were global, although their
involvement in electric utilities abroad was limited and mainly in the form
of extended manufacturers™ satellites.205 Yet, domestically they had set the
basis for the public utilities that would later have lives of their own and
vigorously expand. In 1905, General Electric had organized Electric Bond
and Share; in time, it, and then its offspring, would assume a major role in
international business.206
Aside from the extended manufacturers™ satellites and some enclave form
investments, U.S. business abroad in the electric utilities sector was prin-
cipally in the areas to which U.S. investment generally ˜˜spilled over,™™ that
is, in Canada, Mexico, Central America, and the Caribbean islands.207 In
Canada, there were sizable U.S. outward foreign direct investments in
electric utilities, while the U.S. foreign direct investment in electri¬cation
across America™s southern borders existed but was far more limited. Out-
ward foreign ¬nance from the United States for utilities was available, but it
was not yet consequential (at least in comparison with what was to come in
later years and with what was taking place from Europe or even Canada).
The large outward ¬nancial investment from the United States (which
might possibly be classi¬ed as an outward foreign direct investment) in
the early twentieth century in the London underground (subway) was an
exception.208
By contrast, by 1914 Canadians were far deeper into internationalization
in this sector than were U.S. companies. Not only was there large inward
foreign direct investment from the United States (principally in Quebec and
Ontario), but there were also inward British foreign direct investments (the
largest being in British Columbia).209 Moreover, over the years Canadians
had become very knowledgeable in the electric utilities sector and through
various interconnections were well established in Latin America, especially
in Mexico and Brazil, where large Canadian free standing companies were
very much in evidence. Indeed, by 1914 Canadian investments in Mexico
and Brazil had for more than a decade overshadowed the earlier German
involvements. (Important Canadian and British direct investments in light
and power coexisted in both of these Latin American countries.) And then
there was the newer signi¬cant activity in Spain.210 Canadians skillfully
intermediated British and continental European portfolio investments. Key
Canadian groups depended heavily on the talents of the American engineer
Fred Stark Pearson.
Throughout Western Europe, by 1914, there were both outward and
inward investments of different sorts in electric light and power. That
Britain was the world™s leading creditor nation was not, however, re¬‚ected
in its business abroad in electric utilities, although by 1913 British capital
was reported to be interested in some eighty electrical concerns within Latin
America.211 British outward investments took several forms. Britain was
the principal country for the registration of free standing companies. The
Global Electri¬cation
122

reasons for these British stakes abroad lay in British joint-stock company
law, the presence of the London stock market, stockbrokers with special
know-how in electrical issues, and investment trusts that would buy these
securities. Initiators of British free standing companies in electric utilities
worldwide were construction companies (such as S. Pearson & Son),
trading companies, engineers, stockbrokers, and the like. There were also
important outward British direct investments associated with enclaves, such
as those linked with Rio Tinto in Spain or Anglo-Persian in Iran. While
there were inward foreign investments in electric utilities in the United
Kingdom, by 1913“1914 they were not substantial.212
In 1914, German outward investments in electric utilities far exceeded
those of the British. The forms were not the same, with many of the
German direct investments associated with the strong electrotechnical
sector “ that is, with AEG and Siemens. The Germans used Swiss, Belgian,
and German holding companies to pursue their direct investments. By
1914, Swiss and Belgian holding companies had developed extensive
business abroad in public utilities. There were also German direct invest-
ments abroad through British free standing companies. The presence of
˜˜universal™™ banks in Germany, Switzerland, Belgium, and Italy was
important in ¬nancing electri¬cation on the entire European continent.
Southern and Eastern European utilities were large recipients of inward
direct investments.
While North America and Europe (including countries not mentioned
above, such as France) were both homes and hosts to international
investments that stimulated the spread of electri¬cation, Latin America,
Australia/New Zealand, Asia, and Africa had a far lower level of electri¬-
cation; moreover, countries in these regions (Japan excepted) were hosts
rather than homes to foreign investments. Of these four continents, Latin
America attracted the most inward foreign investments in electric utilities,
practically all of them direct investments going principally to Argentina,
Brazil, and Mexico, although smaller economies in Latin America also were
targets for foreign direct investments. In 1914, prosperous Argentina was
particularly appealing for foreign investors. Estimates indicate that about
one-half of all Argentine capital in 1913 was foreign-owned, probably the
highest percentage of any major debtor nation at the time.213 The invest-
ments in electric utilities (light and power companies and tramways) were
part of these investments. German investments in this sector predominated
in the electri¬cation of Buenos Aires, but there were also British interests, as
well as those of other nationalities “ Swiss, Belgian, French, and U.S. ¬rms “
involved in Argentine electri¬cation. The foreign investments were not only
in Buenos Aires, but in Tucuman, Cordoba, Rosario, and other Argentine
´ ´
cities. Peter Hertner estimates that German investment in the Argentine
electricity sector (including electri¬ed tramways) amounted to 230 million
marks (ca. $55 million) at the outbreak of World War I, a ¬gure that was
Chapter 3: Every City, 1880“1914 123

three to four times higher than the amount the Germans had invested in
Italy or Spain, where they had substantial interests. Throughout Latin
America, as we have already indicated, countries had different nationality
combinations of inward investments in electric utilities; in many nations on
this continent, electric utility investments in the early twentieth century had
become an attractive sector for foreign investors.214
Certain cities in Australia and New Zealand, as we have seen, attracted
British free standing companies to tramway, light, and power companies. It
was the European, not the Asian, parts of the Ottoman Empire that were
being introduced to electricity. As for the rest of Asia, overall inward
foreign direct investments were not large, nor was electri¬cation very
extensive. Once again, what predominated were British free standing
companies in the cities of Bombay, Calcutta, and Delhi (in India); Colombo
(Ceylon); Hong Kong and Shanghai (the latter for tramway only); and in
Singapore. There also were some enclave-type investments. In Chinese port
cities, Belgian, British, French, German, and Japanese companies provided
some electric power, especially for tramways, and So¬na had investments
in Thailand.215 The Japanese direct investments in Chinese electri¬cation
were in the main associated with the South Manchuria Railway from 1906
onward. In addition, Japanese direct investors had interests in electric
utilities in the Japanese colonies of Korea and Taiwan.216 For most of the
African continent, there was no electri¬cation, except in South Africa and
in North Africa, where there were inward foreign direct investments and in
coastal cities in the rest of Africa, where colonial administrators might have
generators (isolated plants). There was a British free standing electric light
and power company in Nairobi, British East Africa (Kenya).217 There was
some electri¬cation embedded within enclaves; Belgian investors had barely
started electri¬cation in the Congo. In Latin America, Oceania, Asia, and
Africa, often electri¬cation was associated with mining or oil operations
(and to a lesser extent agricultural ventures) “ developed by companies
from Britain, continental Europe, and the United States.
In short, by the eve of the First World War in 1914, foreign investors had
spread electri¬cation on a vast, global, but very uneven scale. Domestic and
international investments had reached the point that some electri¬cation
was present in every large city in the world. This did not mean, by any
stretch of the imagination, that every household in these cities had elec-
tricity. Indeed, in 1912 less than 25 percent of nonfarm dwellings in the
United States had electrical service.218 Thus, the world of 1914 was still
very far from the contemporary one, where electricity is taken for granted
as ubiquitous “ at least expected to be ubiquitous. Nonetheless, by the
summer of 1914 every large-city dweller around the world was familiar
with electric lights at the very minimum and possibly also electric tram-
ways. All parts of a city might not have access to electricity, but all large
cities had at least the rudiments of electricity and often more. For instance,
Global Electri¬cation
124

large European and North American cities had more, as did some Latin
American urban areas. In Barcelona, Buenos Aires, Cairo, Constantinople
(Istanbul), Mexico City, Moscow, and Petrograd (St. Petersburg), foreign-
owned companies provided virtually all the electric lights and electric
power. The process of global electri¬cation was underway, spurred by
multinational enterprise and the availability of international ¬nance.
4

War, the First Nationalization, Restructuring,
and Renewal, 1914“1929




˜˜Civilization has broken down, and there 1is the most absolute derange-
ment of a great part of our affairs,™™ wrote Frank A. Vanderlip, President of
National City Bank, on August 4, 1914. World War I had just begun. Great
Britain, France, and Russia (the Entente) were on one side with Germany
and Austria-Hungary (the Central Powers) on the other. The major stock
markets had stopped functioning. International business and international
¬nance were in total disarray.1

<<

. 5
( 20)



>>