. 9
( 20)


Pro¬ts were to be distributed one-third to the Chilean government, one-
third to stockholders, and one-third to subsidize reduced rates.116
In those four countries “ indeed, throughout Latin America in the 1930s
“ foreign-owned companies dominated the electric utility sector.117 As there
were new attempts to industrialize, everywhere there were concerns with
low productivity, which economists believed could be traced in part
to shortages of electric power. The response was in many cases more
government intervention to attempt to rectify the problem.118 The shortage
Global Electri¬cation

of foreign exchange led to import substitution policies, restrictions on pro¬t
remittances, and the depreciation of currencies. To add to the woes of
foreign companies, the governments in Argentina, Brazil, Chile, Mexico
began mandating wage hikes for electric utility employees. At the same
time, the governments would not authorize rate increases.119

the u.s.-canadian connection
In 1936, Herbert Marshall, Frank Southard, and Kenneth Taylor published
a comprehensive book on Canadian-American industry, showing the for-
midable impact of U.S. direct investments on the Canadian economy. The
book includes a section on light and power companies.120 The authors
concluded that in the mid-1930s, as a consequence of earlier investments,
˜˜the distinctly and de¬nitely American owned companies in Canada [sup-
plied] 34 percent of the electricity (in terms of kilowatt hours).™™121 Much of
these activities were outside the Province of Ontario, where increasingly the
provincial government was playing an important role.122 In addition, there
was a second group of companies in Canada in which U.S. ¬nancial interest
˜˜[was] pronounced but which [was] largely or entirely Canadian con-
trolled.™™123 In this second category, Marshall, Southard, and Taylor
included Montreal Light, Heat and Power, where much of the ¬nancing had
been done over the years in the United States, but which always seems to
have been independent of U.S. control.124 Marshall, Southard, and Taylor
also included in this second category Shawinigan Water and Power, which
was one of John Aldred™s ventures. In 1933, only about 11 percent of the
equity of this company was held in the United States, although Aldred was
still chairman of the board. The suggestion was that this had moved from
what was once (before World War I and in the 1920s) a U.S. direct
investment to a Canadian-dominated one.125
The ¬rst group “ that of the clear U.S. direct investors in Canadian
electric utilities “ was divided into two segments: the Canadian ¬rms that
were owned and controlled by the large U.S. public utilities holding com-
panies and the power companies owned by American branch plants, paper
mills, or mines, for example. There had been an expansion of U.S. interests
in electric power in Canada in 1930 “ and perhaps in 1931 as well. Off-
setting this, in 1930 the Hydro-Electric Power Commission of Ontario
(Ontario Hydro) acquired the Canadian properties of Public Utilities
Consolidated Corporation (a Foshay company), one of the many U.S.
public utilities holding companies that had expanded into Canada in the
late 1920s and 1930.126 Otherwise, the large investments present in the
1930s were carryovers from earlier years. A handful of U.S.-owned news-
print companies that supplied power went into receivership, but this did not
seem to change U.S. ˜˜control.™™ As they came out of receivership, they
remained U.S.-owned and controlled.127 International Paper and Power
Chapter 5: Basic Infrastructure, 1929“1945 215

Company with its vast network of power plants, principally in Quebec,
retained its great importance.128
The U.S. reform of the public utilities sector “ the Public Utility Holding
Company Act of 1935 “ did not immediately affect the holdings in Canada
that for the most part seem to have continued. We did note earlier some exits
in 1940 associated with the PUHCA reorganizations. Also earlier noted,
PUHCA gave an exemption from the terms of the act to holding companies
that had ˜˜all or substantially all of their operating companies outside the
United States.™™ Related, and more important vis-a `-vis Canadian business, a
U.S. subsidiary that derived no material part of its income from sources
within the United States could be exempt from PUHCA rules.129 Thus, U.S.
holding companies with subsidiaries in Canada that obtained their income
from producing and selling electricity in Canada quali¬ed for exemptions.
During the 1930s, Canadian public authorities did, however, become
concerned over the sizable role of U.S. companies and whether it was ap-
propriate. Ontario Hydro (owned by the province of Ontario) was already
by 1929“1930 supplying over three-quarters of the electric power generated
in that province.130 A number of U.S. electric utilities in Canada sold their
power wholesale to Ontario Hydro.131 The most important sales of power
came from International Paper and Power Co.™s subsidiary Gatineau Power
Co. During the 1930s, Ontario Hydro had the lowest residential and small-
user rates in North America, and as a result other provinces began to follow
the lead of Ontario Hydro, providing competition to private-sector com-
panies and often replacing them “ thus, in the long run serving to reduce
foreign ownership and control.132 Throughout the 1930s, however, while
not increasing, U.S. direct investments in supplying electricity in Canada
continued to be signi¬cant. By way of contrast, British direct investments in
Canadian electric light and power seem in the 1930s to have been tempo-
rarily nonexistent (as indicated in Chapter 4, the last big British stake, that
in the British Columbia Electric Railway Co., had been acquired in 1928 by
the Canadian-controlled Power Corporation of Canada). But in 1938, the
British ¬rm Bowater purchased from International Paper and Power the
latter™s equity interest in International Power and Paper of Newfoundland
(which the American giant had owned since 1927). Newfoundland was not
yet part of Canada. Bowater acquired a large mill, the so-called Corner
Brook company, which then became Bowater™s Newfoundland Pulp and
Paper Mills Ltd. It had a sizable power facility.133

the middle east, asia, oceania, and africa
During the 1930s, there were two aspects of foreign direct investments in
electric utilities in the Middle East. The ¬rst had its genesis in the breakup
of the Ottoman Empire and was in the mandated and independent terri-
tories. In Syria and Lebanon, there were the rudiments of electri¬cation by
Global Electri¬cation

French/Belgian companies. In British territory, a free standing company had
undertaken electri¬cation in Palestine. In Turkey, the Turkish government
had increasingly taken over the limited electri¬cation, with the entire pro-
cess culminating in 1938.134
A second aspect of electri¬cation in the Middle East occurred as foreign
companies explored for oil. Electri¬cation was evident in Iran near the oil
¬elds and the large re¬nery at Abadan. In Iraq, the ¬rst oil was exported in
1934. Oil was discovered in Kuwait and Saudi Arabia in 1938. As foreign
companies looked for oil, electri¬cation emerged in company towns.
In the 1930s, there was a larger foreign direct investment role in Asia
(from Malaya to Thailand to India to China) than there had been in the
1920s. With the exception of Japan (where there was no foreign direct
investment), the amount of electric power available was not substantial,
measured by the size of Asian populations. Large rural areas throughout
Asia were not electri¬ed by either domestic or foreign investors. Every-
where, however, there was more access to electricity in 1939 than in 1929
because of the foreign investors™ role, but the rise was small relative to the
huge numbers of people. Thus, the British-owned free standing company
Calcutta Electric Supply Corp. Ltd. in 1934 purchased the property and
goodwill of the Bhatpara Power Co. and obtained the permission of the
Bengal government to take over its license. The energy it sold increased
from 230 million kWh in 1934 to 395 million kWh ¬ve years later. The
area the company served had 1.5 million people, but by the end of 1939
merely 57,415 houses were connected with electrical wiring, a bare fraction
of the houses in the area.135 In short, there was a modest spread of elec-
In China, by contrast, American & Foreign Power embarked on a major
effort to modernize the Shanghai power system.136 Before the Japanese
moves into China in 1937, its subsidiary Shanghai Power Co. had con-
tracted for equipment and machinery for a new 15,000 kW installation, to
complement its existing capacity. Work started in March 1937, but with
the Japanese aggression, it was halted in September 1937 and American &
Foreign Power announced that ˜˜completion of the installation [would] be
delayed until demand for service increase[d] suf¬ciently to require it.™™137 In
1939, work resumed but was then quickly suspended once more, owing to
˜˜the Sino-Japanese con¬‚ict.™™138
By the 1930s in Australia and New Zealand, virtually all the electric
power was supplied by municipalities or provinces and ¬nanced domesti-
cally, although in certain mining facilities British capital offered the funding
to provide electricity in enclaves. There remained some other British direct
investment in Australia “ for example, in the Adelaide Electric Supply Co.
Ltd.139 Otherwise, there appears to have been no (or very minimal) foreign
direct investment. The investments of earlier years, which we discussed in
Chapter 4, had become domesticated.
Chapter 5: Basic Infrastructure, 1929“1945 217

Throughout Africa, electri¬cation was associated with empire. It was
limited to urban areas, to mining camps, and to other enclaves. North
Africa (particularly Egypt and to a lesser extent Algeria and Morocco), the
Sudan, Kenya, South Africa, and Nigeria and other parts of West Africa
had rudimentary availability of electricity in urban areas. There was
probably more in 1939 than in 1929, but not much more.

summary table, 1937
Harm Schroter constructed Table 5.1, based mainly on data in annual
reports and directories. In the present volume, we have encountered all of
these ¬rms. It is important to note that none was formed after 1931. The
table excludes the large group of U.S. companies with direct investments in
The excellent overview that this table provides greatly oversimpli¬es the
role of major actors in what had become very complex corporate structures
with numerous cross-holdings. Moreover, as each of these major companies
had taken over others, they often retained the earlier incorporations
(registrations). Thus, the Canadian-registered Brazilian Traction, Light and
Power had subsidiaries that operated in Brazil but were (for historical rea-
sons) incorporated in Canada, Brazil, and Great Britain.140 The table also
omits the many free standing companies still in existence that electri¬ed
particular cities, as well as the enclaves that were electri¬ed. And, as noted, it
leaves out the signi¬cant U.S. interests in Canada that had been established
by the major U.S. holding companies, as well as some miscellaneous U.S.
holding company properties elsewhere abroad. In addition, it ignores the
foreign industrial companies in Canada (and elsewhere) that provided elec-
tricity to the public along with ful¬lling their own requirements.
The Belgian Empain group seems to be neglected in this table. There are
no U.K.- or French-registered companies on the roster; this inappropriately
suggests the absence of outward foreign direct investment from these
nations. The U.K. free standing companies that still existed (some were
actually holding companies) were not sizable. Yet there were groupings of
British business abroad not re¬‚ected in the table. Thus, for example, the
Pearson group (Whitehall Securities/Whitehall Electric) had in 1937 direct
investments in Spain and Greece (as well as a number of other miscella-
neous electricity supply holdings that were not direct investments). Data
in the S. Pearson & Sons Papers suggest that the assets controlled by
Whitehall Electric were suf¬ciently large that that ¬rm should have been
included in the roster below.141 In addition, the British connections with
So¬na, through Midland Bank chairman Reginald McKenna, Sir Edmund
Wyldbore-Smith, and Dudley Docker that continued from 1920s are not
shown in this table.142 Likewise, there were French direct investments
abroad not represented in the entries on this table.143 Thus, the list given on
Global Electri¬cation

Table 5.1. The Assets of Electric Utilities with Investments Abroad, 1937
(assets in millions of U.S. dollars)*

Company (Country/
City of Registration) Assets Notes
American & Foreign By far the largest electrical holding
Power Co. (U.S.) company (by assets) with direct
investments in Latin America and Asia.
Brazilian Traction, Light A holding and operating company in
& Power Co. Brazil.
So¬na (Belgium) Worldwide investments in holding and
operating companies in Europe and Latin
Electrobel (Belgium) Investments in holding companies with
interests in Brazil, Bulgaria, Egypt,
France, and Spain.
Controlled by So¬na; assets in Spain.†
Barcelona Traction, Light 190.3
& Power Co.
Mexican Light & Power Part of the So¬na/Sidro group.
Co. (Canada/Toronto)
Sidro (Belgium) Controlled by So¬na. Holdings in
Mexican Light & Power, Barcelona
Traction, and two French utilities.
Gesfurel (Germany) Investments in a Hungarian utility (linked
¨ 62.9
with So¬na/Sidro group and AEG).
Hydro¬na (Belgium) Controlled by Electrobel. Largest
investment in Romania.
Motor-Columbus Controlled by Brown, Boveri. Direct and
(Switzerland/Baden) indirect investments in Argentina,
Ecuador, Germany, Italy, Peru, and
CHADE (Spain) Principal direct investments in Argentina
(in CADE). So¬na had controlling
Italian Superpower Principal investments in Italy. Atlas Corp.
Corp. (U.S.) (by 1938) owned 50 percent of the shares.
Electrobank Mainly portfolio investments in Austria,
(Switzerland/Zurich) Belgium, France, Germany, Poland,
Portugal, Spain, United Kingdom, and
United States.
International Power Held its own securities that had been sold
Securities Corp. (U.S.) for Italian ¬nance. An Aldred company.
European Electric Corp. Set up by Italian group, a Volpi company,
(Canada/Montreal) associated with Italian Superpower.
Chapter 5: Basic Infrastructure, 1929“1945 219

Company (Country/
City of Registration) Assets Notes
Schweizerisch- Af¬liate of Motor-Columbus, with
Americanische operations in four Latin American
Elektrizita countries, including interests in Lima
(Switzerland/Zurich) Light and Italo-Argentina.
International Power Co. Holding company with interests in
(Canada/Montreal) Bolivia, British Guiana (Guyana), El
Salvador, Mexico, Puerto Rico, and
Elektrische Licht und Through a Swiss af¬liate, held a portfolio
Kraftanlagen AG that included securities of CHADE, Sidro,
(Germany) etc. Holding company associated with
Societe Financiere Involved in ¬nancing Italian utilities.
´´ ` 14.1
Societe Generale pour Took over Franco Suisse in 1932.
´´ ´ ´ 12.2
l™Industrie Electrique Portfolio investments in France, Italy, and
(Switzerland/Geneva) the United States.
Indelec (Switzerland/ Investments in Czechoslovakia,
Basel) France, Germany, Luxembourg, and
Abroad is de¬ned as outside the country of registration.

In 1936, during the Spanish Civil War, a Spanish Workers™ Committee took control of
Barcelona Traction, Light and Power, but it continued to operate.
Source: Adapted from Harm Schroter, ˜˜Globalization and Reliability: The Fate of Foreign
Direct Investment in Electric Power-Supply During the World Economic Crisis, 1929“1939,™™
Annales Historiques de l™Electricite, 4 (Nov. 2006), 105“6.

Table 5.1 is far from complete, but it does indicate most of the major
international investors in electric utilities in the late 1930s.
By 1939, So¬na, together with the electric utilities under its direction,
was said to employ a staff of 40,000. American & Foreign Power in 1939
had a roughly comparable number: 35,260.144 We do not have a total for
employees of So¬na af¬liates in 1929, but American & Foreign Power and
its subsidiaries had over 47,000 employed that year.145 Thus, over the
course of the 1930s, American & Foreign Power had shed almost 12,000
employees. It is not clear whether the same was true of So¬na, but it seems
likely. With fewer employees, American & Foreign Power was, however,
producing and distributing more electricity “ so there were gains in ef¬-
ciency. Moreover, its assets far exceeded those of any other international
electric utility company.
Global Electri¬cation







Matzatlan San Luls Potosi

Aguascalientes Tampico
I Merida
Veracruz Santiago

Barranquilla Cienaga
Santa Marta Caracas
San Jose
La Victoria
(Costa Rica) Panama


PACIFIC Zipaquira

OCEAN Riobamba


B R A Z I L Pernambuco


Santa Amaro

Cachoeira Bahia


Bello Horizonte

Santa Barbara

Ribeirao Preto


Campinas Sao Concalo
Oran Aracatuba

Shanghai Nictheroy
C H I N A Salta Jujuy



Cordoba Santa Fe
San Juan Maipu Porto Alegre
Valparaiso Mendoza Pelotas
Santiago Luris

San Rafael Junin

OCEAN ivilc
INDO hJuarez
C Tandil
CHINA Mar del Plata








map 5.2. American & Foreign Power Operations, 1939
Source: American & Foreign Power Co., Annual Report 1939.

The map included herein covers the activity of just one holding company,
although measured by assets in 1937 it was the largest one in the light and
power sector. Within Latin America, where its operations were the greatest,
American & Foreign Power provided light and power in Argentina, Brazil,
Chile, Colombia, Costa Rica, Cuba, Ecuador, Guatemala, Mexico, Panama,
Chapter 5: Basic Infrastructure, 1929“1945 221

and Venezuela. Were we to include the activities of So¬na, Mexican Light
and Power Co. Ltd., Brazilian Traction, Light and Power Co. Ltd., as well as
CHADE/CADE (in all three of which So¬na had an interest), along with
those of Motor-Columbus and International Power Co. Ltd., the map of
Latin America would reveal a far greater participation by foreign-owned
companies in electri¬cation.146 At the end of the 1930s, American & Foreign
Power Co., moreover, had no ˜˜operations™™ in Europe, Africa, or the Middle
East, so this map does not capture the global span of foreign direct investments
that we have discussed earlier and that are indicated on Table 5.1. American &
Foreign Power did have a tranche in (or at least a relationship with) So¬na,
however, which in turn had far-¬‚ung interests.147 In short, toward the end of
the 1930s there continued to be sizable foreign direct investments around the
world, though it could be said that the links within and outside multinational
enterprises (buffered by nationalist sentiments and activities) were weaker
than in 1929“1930. Moreover, for businesses to prosper, it is not enough to
simply survive; there needs to be new investments and ambitious new plans.
These were constantly being thwarted. The Heineman-Oliven vision of a
˜˜European electrical grid,™™ linked through a multinational enterprise struc-
ture, was on the eve of World War II a dim memory.

world war ii
World War II came as no surprise. Japanese aggression in Asia, Italian
moves in Africa, the Spanish Civil War as a testing ground were all signs of
the mounting world tensions. Then came the Anschluss, when in March
1938 the Germans incorporated Austria into the Reich. Later in that same
year, the Munich Pact resulted in the German takeover of Czechoslovakia.
And ¬nally, less than twenty-one years after the 1918 Armistice, Europe
was again “ in September 1939 “ at war. Little more than two years later,
after the December 7th Japanese attack on Pearl Harbor, the United States
became a combatant. The Second World War would be longer than the
˜˜Great War™™ had been. When World War I began, there was an interna-
tional ¬nancial system dominated by the gold standard. Rates of exchange
were for the most part stable. There was a general optimism about tech-
nological progress. The First World War abruptly shattered the compla-
cency. By contrast, there was no global ¬nancial ˜˜system™™ at the advent of
World War II. Autarchic conditions, ¬‚uctuating exchange rates, and
restrictions on capital movements were the norm. Practically everywhere,
there was little sanguinity about conditions within national economies.
Between the two wars, developed countries (the United States, Canada,
Europe, and Japan) had become in large part electri¬ed “ principally with
domestic capital, but in a number of nations with the assistance of foreign
(direct and portfolio) investors that had stimulated the process “ and at the
margin if not more had had substantial impact. National grids had begun to
Global Electri¬cation

connect distant points within advanced countries. Everywhere, national,
regional, and local governments were playing a far larger role in the spread
of electri¬cation than had been the case in 1913, much less in 1918 or 1929.
Even in the United States, rural electri¬cation was occurring under gov-
ernment auspices. Having electricity had come to be accepted as living in
the ˜˜modern™™ age. Electricity was part of the basic infrastructure. The New
York World™s Fair (which opened April 30, 1939) highlighted ˜˜the world of
tomorrow™™ with its new uses of electricity “ television, electric dishwashers,
home air-conditioners, and other household appliances. The fair™s exhibits
provided an aura of the possibilities in an otherwise bleak world.148
If there was no international ¬nancial ˜˜system,™™ there was on the eve of
the World War II a highly complex maze of international investments in
electric utilities, both direct and portfolio investments. There were inward
and outward foreign investments that crisscrossed advanced countries in a
highly unsystematic manner. Each advanced country had a different ratio of
inward and outward investments and a different ratio of foreign direct
investment to foreign portfolio investment. Even though capital ¬‚ows had
dried up in the 1930s, there persisted a lingering jungle of ¬nancial obli-
gations that created unease among both debtors and creditors. In Latin
America, foreign direct investors dominated the provision of electric power.
Of the less-developed countries in the world, Latin America was far ahead
in electri¬cation. Foreign direct investors took part in electricity supply
activities in Asia (excluding Japan, where they had never been present),
Africa, and Oceania to a lesser extent. It is hard to overemphasize how
complex the ¬nancial and multinational enterprise interrelationships had
Thomas Hughes ended his brilliant book Networks of Power (1930) by
noting that by then in the more advanced nations, ˜˜the regional power
systems, including those owned by private utilities, government agencies,
and mixed private and government enterprises, had matured. After 1930
changes in these systems became less qualitative and more regular and
predictable.™™149 The regularity and predictability were technological, not
political. The growth of electri¬cation that occurred in the 1930s was
slower than in earlier years, hampered by constraints on international
capital ¬‚ows and on the ability of multinational enterprises to set their own
rates and to make remittances, on tax structures that left little pro¬t for
reinvestment, yet there was, nonetheless, an upward spiral in electrical
generating capacity. And this was based on private- as well as public- sector
companies “ and in the private sector, on foreign as well as domestic
companies. In 1939, worldwide, more homes had access to electricity than
ever before in history.
The 1939 annual report of So¬na documented ˜˜the remarkable growth
in the generation of electrical energy.™™ American & Foreign Power supplied
755 communities outside the United States with electric light and power
Chapter 5: Basic Infrastructure, 1929“1945 223

service as of December 31, 1929; as of December 31, 1939, the number had
risen to 987 communities. In 1939, it served 1.3 million customers with
electric light and power.150 In the year 1929, generating- station output
(including power purchased) for this single company was 2.1 billion kWh;
the comparable ¬gure for the year 1939 was 3.4 billion. So¬na™s annual
reports did not give a 1929 ¬gure, but its 1939 annual report stated that
˜˜the companies in which we have our principal interests recorded . . . a rise
in their electricity output™™ in the last four years from 6.2 billion to 7.7 billion
kWh and ˜˜an increase in the number of their customers™™ in the same period
from 3.2 million to 3.7 million.151 The seemingly unstoppable growth had
continued through the 1930s.
In September 1939, with the start of the war in Europe, the private
sector™s international economic and organizational structures became
increasingly fractured. Already in 1938, Heineman at So¬na was making
plans just in case the Germans occupied Belgium. So¬na had sizable
interests in gas and electric facilities in Portugal, and in August 1939
Heineman arranged for the transfer of So¬na™s records to Lisbon “ just in
case. Even earlier, in March 1939, So¬na had set up the subsidiary
American Intercontinental Trade and Services (Amitas) and opened an
of¬ce in New York City. Well before the German invasion of Belgium,
So¬na transferred a part of its administration, its entire shareholdings, and
important members of its leadership to Lisbon and New York. While
So¬na™s main of¬ce remained in Belgium, its so-called permanent com-
mittee in Lisbon was provided complete control over So¬na™s properties to
avoid German seizure. Like many other companies from Europe, So¬na
made plans to shelter its assets. Heineman himself did not leave Belgium
until the Germans moved in, at which point he and his wife ¬‚ed to France
and then to Portugal and subsequently to New York.
After the Germans invaded Belgium in May 1940, the U.S. Treasury
froze all Belgian assets in the United States to prevent German access to
them. Aside from the new Amitas, So¬na had sizable investments in the
United States in the Middle West Corporation. After the German occupa-
tion of Belgium, the Military Commander for Belgium and Northern France
attempted to interfere with So¬na™s continuing its links with North
American enterprises, sought to stop the removal of any added capital from
Belgium, and took steps to avoid the ˜˜sale of the German values to [the]
USA.™™ Most physical assets could not be moved, of course, but the title to
them was mobile. For the most part, the Germans were too late, because
So¬na had already transferred the securities that represented its major
investments out of the control of the former Brussels head of¬ce.152
Heineman and his family ¬‚ew from Lisbon to New York in July 1940.
That summer, So¬na™s top management crossed the Atlantic, too. So¬na
was not alone among Belgian companies in this move to New York.
Executives of the Empain group and Electrobel also arrived in New York
Global Electri¬cation

City with plans to conduct business from there. So¬na operated in New
York under the name Amitas, which in turn was controlled by a company
called Securitas, designed to hold So¬na assets in safety during the war
years. Amitas got licenses to do business in the United States, required
because of the blocked assets. In the summer of 1941, American control
regulations of foreign funds were extended, and there were new concerns in
the United States over German business in¬‚uences in Latin America.153
By this time, Heineman and So¬na were well installed in New York City,
where So¬na occupied three ¬‚oors at 50 Broadway and had about 300
employees who had escaped from Europe. Out of the New York of¬ce,
Amitas™s engineering and technical staff selected and purchased electrical
equipment, generating supplies, and fuel in the United States to export to
So¬na™s af¬liates in Argentina, Brazil, and Mexico. In the United States,
So¬na owned 4.96 percent of Middle West Corporation stock (just below
the trigger of 5 percent, which would put it under the scrutiny of the
Securities and Exchange Commission). Charles Wilmers (a director of
Amitas) represented So¬na on the board of directors of Middle West
Corporation. So¬na also invested in other U.S. utilities, among them
Electric Power & Light Corporation and Standard Gas & Electric Com-
pany. And in that fall of 1941, Heineman was reported to be making ˜˜quiet
acquisitions™™ of stock in two American utilities, which in turn owned a
93 percent stock interest in Panhandle Eastern Pipe Line, the operator of a
natural gas pipeline from the Texas oil ¬elds to Michigan.154
By this time, So¬na had become an object of U.S. government attention:
Did it fall within the purview of the Public Utility Holding Company Act?
And what of its ˜˜frozen™™ assets in the United States? Was it, in its trade
with Argentina and Brazil, acting to support German enterprise? Was it
violating the new ˜˜blacklist™™ and trading with ˜˜German-controlled com-
panies™™? When So¬na set itself up in the United States, there had been
suspicion on the part of U.S. authorities that it was acting as a front for
German interests. Of course, So¬na claimed that it was escaping German
control and that its af¬liates in Latin America were not German. When the
freeze on Belgian assets was put into effect in May 1940, So¬na had applied
for and received permission to use its assets in America. In October 1941,
however, as more attention was being placed on ˜˜blacklisted™™ companies,
the U.S. Treasury Department became wary, and the New York Times
reported that Treasury had put a ˜˜ban on additional So¬na permits to use
its funds.™™ There were concerns that a rumored-to-be ˜˜German-controlled™™
So¬na was a worry for national security as it sought to buy interests in an
oil pipeline company.155
Heineman got permission to use So¬na funds, and all during the war
years the New York of¬ce continued to operate. Neither the freeze nor the
SEC inquiries jeopardized the existence of So¬na™s operations within the
United States or elsewhere. Like a number of other European companies,
Chapter 5: Basic Infrastructure, 1929“1945 225

So¬na set up an af¬liate in Panama, Services Inc., designed to handle
transactions with Latin America.156 Meanwhile, Brazilian Traction, in one
of the infrequent expansions of generating capacity, had in the late 1930s
ordered equipment and contracted with Siemens in Germany to build a new
generating unit, so-called Lajes ˜˜A.™™ When the war started in Europe, many
parts for that generator were sitting in German warehouses, not having yet
been exported to Brazil. Brazil did not enter the war as a belligerent until
1942, but Brazilian Traction had a Canadian registration and Canada had
followed Great Britain and was after September 1939 a combatant. Duncan
McDowall, the historian of Brazilian Traction, explains that Brazilian
Traction of¬cials in London skirted the ˜˜embargo placed upon all British
companies trading with the enemy by arranging to ship the remaining
components to Rio via Switzerland and the Italian port of Genoa.™™
McDowall continued, ˜˜This desperate move might easily have brought
severe diplomatic repercussions from the British or the German govern-
ment. None the less, it worked, and the Lajes ˜A™ generating unit came ˜on
line™ in 1940.™™157 It is useful to put this in the context of So¬na™s activities
in New York in 1940“1941, as explained above.
The outbreak of war in September 1939 affected all of Europe, both
combatants and noncombatants. Switzerland remained neutral during the
war, but from the start it was caught up in war-related problems. The large
Swiss banks, fearful that Switzerland might not avoid invasion in the Second
World War, like So¬na and other Belgian entities, organized a New York
presence. For the Swiss ¬nancial institutions, this was a novel approach to
their American business. Swiss Bank Corporation, Basel, applied for a New
York agency license in July 1939 (its agency actually began operations in
October 1939). So, too “ and because of its long-standing ties to Elektrobank
probably more important in terms of foreign interests in the electric utilities
sector “ Credit Suisse, Zurich, organized a New York subsidiary, the Swiss
American Company, in July 1939, and opened a New York agency early in
1940. Credit Suisse was not only key in Elektrobank, but it was So¬na™s
principal Swiss bank.158 Not until June 1941 were Swiss assets in the United
States frozen. Because those in public utilities, particularly the sizable ones
made by Elektrobank, were of a portfolio nature, the freezing of Swiss assets
had little consequence in relation to multinational enterprise behavior in the
public utilities sector. The Swiss banks obtained licenses to operate under the
freeze. No business operations in the United States were in any way
impacted. That same June 1941, German assets in the United States were
frozen “ but by this time, German holdings in U.S. electric utilities were
nonexistent or cloaked through Swiss intermediaries.159 As indicated, U.S.
government of¬cials were wary that So¬na and the Swiss banks were a
˜˜cloak™™ for German business.160 There was undoubtedly reason for concern,
as evidenced by the Swiss role in getting Siemens parts through to the So¬na-
associated Brazilian Traction.161
Global Electri¬cation

The war broke down international business relationships, making contacts
over enemy lines dif¬cult. Basically, it meant the fracture of international
business. The British Pearson group “ for example, Whitehall Electric/
Whitehall Securities “ had, as we have noted, acquired controlling interest in
the Spanish company Fuerzas Motrices del Valle de Lecrin in December 1930.
The Pearson group had completed the building of the plant in 1933. Electri-
¬cation was provided. The physical facilities survived the Spanish Civil War,
but on June 27, 1942, the company was sold ˜˜by agreement™™ to Spanish
interests, at an estimated loss by the Pearson group of over £1 million.162 Spain
was neutral during the war, but Franco was widely viewed as pro-German. In
Spain, the Istituto Nacional de Industria (INI) had been created on September
25, 1941, setting up a public-sector company to spur industrialization. It was
inspired by the Italian Istituto per la Ricostruzione Industriale (IRI), which,
as we have indicated, had its origins in 1933 and came to play a leading
role in Italian electri¬cation. INI also came to participate in the electrical
¬eld in a major manner, spawning Endesa in 1944.163 Increasingly in Spain,
public-sector companies emerged to provide electric power and other utilities
as well.
On the European continent, the Germans developed electricity for war
purposes. Within Europe, the occupation meant German control over
electrical facilities, which the occupier expanded as needed for wartime
production. Everywhere, there were shortages of fuel. Energy-intensive
industries “ aluminum and fertilizer production, for example “ put new
pressure on the expansion of electric energy resources. Swiss electricity output
rose as the Swiss sought to maintain neutrality, surrounded by occupied or
˜˜Axis™™ nations. As for Italian electricity production, it mounted to ¬ll military,
industrial, and household demand. In fact, demand far exceeded the existing
production capacity.
Japan™s expansion in China and the Dutch East Indies (Indonesia) brought
it fuel for electrical facilities. A subsidiary of Japan™s long-established Oriental
Development Company, with aid from the Japanese government, created
within Korea a new nitrogenous fertilizer industry, with the fertilizer exported
to Japan. This activity came to be responsible for almost the whole of the
electric power industry in Korea. The modest prewar start of electric power in
Korea now became comprehensive.164 Japan itself by the time of World War II
was almost completely electri¬ed (90 per cent of Japanese homes were wired
for electric lighting).165
In less developed countries, as trade slowed (interfered with by wartime
conditions), there was new demand for import substitution to ¬ll require-
ments, which necessitated new electri¬cation associated with the new
industrialization.166 Throughout Latin America, where major expansion of
electric generating capacity depended on imports of machinery (and often
fuel), there were dif¬culties everywhere as high demand strained existing
Chapter 5: Basic Infrastructure, 1929“1945 227

And then there were the problems in Argentina. Not until March 27, 1945,
with the war almost over, did Argentina ¬nally declare war on Germany.
So¬na™s assets in Argentina were through Compan±a Hispano-Americana de
Electricidad, CHADE (along with the Luxembourg stand-in and a Panamanian
holding company). When in May 1940 the Germans occupied Luxembourg,
SODEC (which had stood in for CHADE since 1938) suspended its activities,
and because the Spanish Civil War was over, CHADE™s role was reinstated as
the parent for CADE (CHADE™s principal Argentine operating company).
During the war years, So¬na used a Panamanian company, Sovalles, Inc., to
protect CADE™s assets.167
In the fall of 1942, Heineman made a trip to Argentina, where he stayed
for several months, trying to negotiate rate increases for CADE. The war
years were not sanguine ones for private enterprise in Argentina. After the
1943 military coup, the Argentine government “ soon to be led by Juan
Peron “ adopted a policy that endorsed state intervention in economic
activity. As in Spain and Italy, in Argentina the federal government became
a major participant in electricity generation. During 1943“1945, roughly
38 percent of the book value of American & Foreign Power Co.™s assets in
Argentina was expropriated.168 CHADE/CADE™s assets in Argentina sur-
vived the war years with no expropriations, but barely so. When in the
postwar period there was an audit of CHADE/CADE™s books, a group of
Swiss shareholders insisted that 1940“1944 expenditures of 15 million gold
pesetas by CHADE were unaccounted for by its board and that pro¬ts
made in those years, aggregating 204 million gold pesetas, ˜˜could not be
traced either in the period [1940“1944] balance sheets of Chade or Cade™™ “
or of the Panamanian intermediary, Sovalles.169 CADE appears to have
been appallingly managed in the 1930s (see above); Heineman™s visits had
not coped with its problems. And as the Peron administration dawned,
CADE came under intense scrutiny. Peron had little patience with private
enterprise, which was re¬‚ected in his administration™s relations with
CADE.170 Nonetheless, CADE maintained operations during the war years,
despite fuel shortages and its continued inef¬cient management. Needless to
say, few Argentines were satis¬ed with the service it provided.
From 1942 to 1945, in country after country, new government involve-
ments in the electricity supply industry emerged, sometimes related to wartime
requirements and sometimes more generally based on the ever-strengthening
ideological view that the market could not handle the provision of a country™s
basic infrastructure. In 1943 Chile, for example, the Corporacion de Fomento
de la Produccion adopted a program for national electri¬cation. La Empresa
Nacional de Electricidad, SA (Endesa or Endesa of Chile, as it was often called,
to differentiate it from the Spanish Endesa) was established in 1944 as a
branch of the Corporacion de Fomento.171
During the war, American & Foreign Power was, as noted, the largest of
the global electric holding companies “ if de¬ned by the assets it controlled.
Global Electri¬cation

The war™s impact was profound. Right after Pearl Harbor, the Japanese took
over its sizable Shanghai properties, and American & Foreign Power wrote
off its assets in China.172 The loss of revenues from its Chinese properties,
however, was more than offset by higher revenues from its Latin American
subsidiaries “ this despite the nationalizations in Argentina.173 The rise of
nationalism in Latin America did not bode well, however, for the future of
foreign-owned companies involved in electric utilities. In¬‚ation indicated a
need for higher electricity charges, but everywhere governments were inter-
vening to stop or at least slow electric rate increases because no government
wanted to face popular complaints about higher electricity prices. As elec-
tricity increasingly became a necessity, its cost became a politically sensitive
issue. But most promising for the future, the ˜˜war-induced prosperity™™ in
Latin America encouraged industrialization. Living standards rose, and thus
demand for electric power mounted rapidly. American & Foreign Power
discovered that in some Latin American countries its production capabilities
were lacking, so despite shipping delays and equipment shortages it under-
took $45 million worth of wartime construction in Latin America, an
amount barely adequate to meet the expanded demand.174 In the eyes of
corporate leaders, the increasing demand seemed to present promising
opportunities for the postwar future.
In World War II, even more than in World War I, governmental func-
tions and responsibilities expanded everywhere. Even before the United
States entered the war, the federal government was planning for peace.
Among those countries that would ultimately be victors (and not only the
United States), there was a broad examination of what had gone wrong in
the past. Although this search for answers was true in many of the Allied
countries, it was particularly evident in the United States. Why, asked
government of¬cials and the academic community, did World War II
happen so close on the heels of World War I? How was a Third World War
to be prevented? World War I and its aftermath were judged an economic
disaster. How could planners escape a similar set of post“World War II
experiences? What could be done to deal with the expected short postwar
boom, which might well be followed by massive unemployment and a
global depression?
In July 1944, meetings at Bretton Woods, New Hampshire provided the
basis for setting up the International Monetary Fund and the World Bank,
with one goal being to identify past mistakes and rectify them. There had
been problems with the monetary system, and the 1920s were perceived as
˜˜a sad chronicle of attempts, often high-minded and frequently ingenious,
but in the ¬nal analysis doomed to futility, to deal with the tangled legacy
of the Great War.™™175 Once things went wrong in the 1920s, the world
economy fell apart during the 1930s. In 1944, the pervasive notion was that
not only must the monetary system be repaired, but there must be provi-
sions for funding world reconstruction and development. Recovery would
Chapter 5: Basic Infrastructure, 1929“1945 229

not be automatic. Governments had to play a role in a manner that involved
international cooperation. Already in the 1930s, in numerous countries,
this enlarged governmental role was taken for granted. In the United States,
for example, the Export Import Bank had been doing substantial ¬nancing
of public utilities abroad in the 1930s. Now, on a bilateral and multilateral
basis, it was expected that governments would provide for the needs, given
the inadequacies of markets. Whether it was coping with fuel requirements
or with electri¬cation, the private sector could not be relied on. If the 1930s
had seen added governmental interventions to regulate the process of global
electri¬cation, World War II seemed to ensure that that role would continue
into years beyond. Private-sector ¬nancing of basic infrastructure around the
world would not suf¬ce. Moreover, when the war was over, the internationally
networked private enterprise system that over the years had established elec-
tri¬cation on a global basis was in disarray. International business faced new
circumstances and new challenges.
There was another major change that occurred in the world economy as
an outcome of World War II. After World War I, the United States had
emerged as a world leader “ bar none. Yet in 1919, the nation did not
recognize its strength and the British loss of leadership was fresh. Germans
had been in denial. They had hoped to resume their key role. After World
War II, the superiority of the United States was evident for all to see.
Moreover, Americans were set to take leadership. At the same time, other
nations hoped to be players in the world economy, and Britain was parti-
cularly fearful lest the erosion of its traditional international role continue
and accelerate. Already, Britain had been supplanted in Latin America.
Would this happen elsewhere?176 Of course it would. America came out of
the Second World War as the strongest country in the world. Apart from
Pearl Harbor, there had been no physical destruction. America was ready to
help the rest of the world rebuild. Where would private-sector multinational
enterprise in the electrical sector ¬t into the scheme of things? No one knew.
part iii


Summary of the Domestication Pattern to 1978

When World War II was over, the challenges were immense. Everywhere,
there was damage that needed repair. Everywhere, exchange controls were
in effect; currencies were inconvertible; trade restrictions were abundant.
The problems facing the world community were formidable. Although
around the world there remained many areas (especially rural ones)
untouched by electri¬cation, an awareness of electricity as essential now
prevailed. Home and industrial uses of electricity already had expanded
tremendously and were continuing to grow. People wanted far more than
lightbulbs; they wanted an ever wider range of electrical goods, including
washing machines, refrigerators, and eventually television sets. Usages of
electricity soared. Industry required power sources. Air conditioning
opened previously unimaginable opportunities. In the big projects of the
new World Bank, providing electrical infrastructure came to be a top pri-
ority.1 Dams would be built and resources harnessed. And the world would
be a better, more prosperous one as a consequence.
This chapter is titled ˜˜Summary of the Domestication Pattern to 1978,™™
for by the end of the Second World War domestication (the elimination of
the participation of foreign multinational enterprises) was well under way.
Nonetheless, multinational enterprises were still present in many countries.
The process of exits of multinational enterprise accelerated in the years
1945“1978, with only rare entries of new participants in that period.
However, the process was not smooth. In the 1950s, existing multinational
enterprises (particularly American & Foreign Power) went through some
episodes of great optimism and expansion, but then, especially after 1960,
the retreats became inexorable.2 Thus, the ¬rst section of this chapter
documents the domestication pattern as it proceeded in the postwar dec-
ades, while the second section ¬‚ashes back to summarize the entire story

Authors: Mira Wilkins and William J. Hausman.

Global Electri¬cation

and to explain why domestication occurred. By 1978, the process was
virtually completed.
Out of the war™s experience, a pervasive view held that the market
mechanism was by itself incapable of providing for recovery, reconstruct-
ion, and economic development, a part of which included establishing or
reestablishing a working electrical network with reliable electricity supplies
and distribution. Governments would have to be involved in a critical
manner. Of course, governments had from the earliest days been partici-
pants in electri¬cation, from the initial concessions that municipalities
granted, to the emergence of local, regional, and national regulation, to the
setting up of national grids, and, in many cases, to ever more frequent
government ownership. In the United States in the postwar years, there
remained a mix of investor-owned, municipally-owned, and state government-
owned utilities, along with the large federal government power projects such as
TVA and the Bonneville Power Administration.3
In the interwar period in Germany, many electric utilities had state,
mixed, or municipal ownership, which had at varying speeds substituted for
private-sector involvements. Governments in Germany had guaranteed
foreign loans to utilities in the 1920s and 1930. In West Germany in 1948,
of the nine large electricity supply companies linked into the German power
grid, four were 100 percent state-owned; another four were more than 50
percent state-owned; and only the Rhine Westphalia Electric Power Com-
pany (RWE) had state ownership of less than 30 percent.4 The post“World
War II recognition of more government participation in economic life was
particularly echoed in the light and power sector.
The government (national and subnational) involvements had another
implication: They put foreign direct investments at serious risk. That there
would be a government role from regulation to ownership of this basic
necessity was taken for granted in the ¬rst postwar decade. Increasingly, it
would be a national government role. The role might rise or fall, but few
doubted that it would be signi¬cant. The more governments were involved,
the less opportunities for private-sector multinational enterprises. At war™s
end in 1945, around the world foreign ownership and control that existed
in electric light and power were carryovers from past times. But, for
example, U.S. direct investments abroad in utilities were smaller than they
had been in 1940.5 In Canada, where, unlike most developed countries,
inward foreign direct investments were still sizable, there would soon come
to be a sharp drop in U.S. ownership and control in that sector. (The foreign
direct investments in this activity in Canada were virtually all from the
United States.)
In Latin America, the 1943“1945 expropriations of American & Foreign
Power properties in Argentina were harbingers of things to come. In 1946,
Mexico Tramways was taken over by the Mexican government, and a few
years later the Mexican state obtained majority control of Mexican Light
Chapter 6: Summary of the Domestication Pattern to 1978 235

and Power Ltd. (Mexlight).6 Yet, even though in 1950 the interest of
So¬na, the dominant stockholder, in Mexlight was reduced to 36.4 percent,
a writer in 1956 would refer to this Mexican public utility as being ˜˜largely
European owned.™™7 The Mexican government™s insistence on over 50
percent of the equity meant foreign ownership and, more important, con-
trol were being eroded (even while not eliminated).8
The prewar Swiss and Belgian corporate institutions so crucial in past
times to the dissemination of electri¬cation on a global scale were restruc-
tured. In 1947, the Credit Suisse“dominated Bank fur Elektrische Unter-
nehmungen (Elektrobank), Zurich, for example, changed its name to
Elektro-Watt. It became a sister ¬nance company to Credit Suisse.9 There is
no evidence that in its new role in the late 1940s, 1950s, and 1960s that it
made foreign direct investment. Indeed, as we have indicated, already before
World War II Elektrobank had lost much of its Unternehmergescha char- ¨ft
acteristics “ that is, it no longer served as an entrepreneurial enterprise in the
electric power supply ¬eld. It had once stood in for Allgemeine Elektrizita ¨ts
Gesellschaft (AEG); it now seemed independent of that manufacturer. In
1945, the Swiss Bank Corporation had taken over the Basler Handelsbank.11
The latter had been the key bank in Indelec, Siemens™s one-time Swiss
holding company. Swiss Bank Corporation (SBC) was a major player in the
postwar ¬nancial world with a long history of involvements in ¬nancing
electrical projects. But far more than in the past, in the postwar years it had
many other priorities beyond participation in the electric power sector.12
Motor-Columbus, which had been entrepreneurial on Brown, Boveri™s
behalf, continued on; however, by 1970 it had only thirty employees. It
became basically an investment house, holding securities.13
And then there were the Belgian ¬rms, most notably So¬na, which sur-
vived the war with its top management in exile in New York City. After the
war, its head of¬ce in Brussels was restored. Gradually, the foreign direct
investment role of So¬na and the other Belgian ¬rms in electric utilities
began to dissipate. Dannie Heineman would retire in 1955 (he died in
1962), and after him what remained of So¬na was a shadow of the mul-
tinational enterprise that he had created.14 There had been the Belgian bank
reforms in the 1930s and the seeming separation of the Belgian banks from
the holding companies. Nonetheless, a book published in 1959 described
Societe Generale de Belgique as having worldwide interests, embracing
´´ ´ ´
˜˜some eighty companies in a score of major industries. It was and is the
major factor in the Belgian Congo.™™15 While this book does not deal ex-
plicitly with its interests in electri¬cation, Societe Generale de Belgique
´´ ´ ´
remained a participant. What electri¬cation existed in the Belgian Congo
(now the Democratic Republic of the Congo) was an outcome of its pres-
ence there.
Heineman™s successors at So¬na were not engineers. In 1964, two years
after Heineman died, the Wall Street Journal reported that Societe Generale
´´ ´ ´
Global Electri¬cation

de Belgique had made a $168-million offer to take control over So¬na. It
declared that the proposed purchase of So¬na shares would combine the
efforts of a group of companies in expanding the Belgian economy. ˜˜This
collaboration . . . could lead the two principal ¬nancial companies [Societe ´´
Generale and So¬na] interested in these operations to unite their destinies.™™
By 1964, So¬na was an investment house. But this did not happen imme-
diately after the war, as we will see; it was a gradual process.16 As for the vast
Empain activities in electric power supply and electric traction, these, too,
would be increasingly curtailed. The Empain group, which had long had ties
with the French ¬rm Schneider, in 1950 acquired a more than 25 percent
interest in that manufacturer, a harbinger for even closer connections in the
next three decades.17 In the immediate postwar years, Empain “ like So¬na “
still retained important international business (involving foreign direct
investments), as did some of the other Belgian holding companies.
Both the Swiss and Belgian ¬rms had had sizable direct investment
interests in the electric power sector in France prior to World War II.
Accordingly, they were profoundly affected when the French electricity
supply industry was nationalized after the war. On April 6, 1946, Elec-
tricite et Gaz de France (EGF) became responsible for two new public
companies: Electricite de France (EDF) and Gaz de France (GDF), set up to
operate the newly nationalized electricity and gas suppliers.18 After the
French nationalization, the Swiss holding companies Elektrobank (renamed
Electro-Watt in 1947), Indelec, and Motor-Columbus, as well as Societe ´´
´ lectricite et de Traction, Basel, and Societe Generale pour
Suisse d™E ´ ´´ ´´
´ lectrique, Geneva, put in claims for compensation associated
l™Industrie E
with their ˜˜lost™™ interests in France.19 Comparable claims were made by
the key Belgian groups; Liane Ranieri documents the indemni¬cation of the
French companies in which So¬na was involved.20
The Cold War began in the immediate postwar period. In the interwar
years, as our readers know, sizable foreign direct investments from the
United States and Western Europe were made in Eastern and Central
Europe. The war and then the communist move into Eastern Europe put a
close to those investments. There was a complicated claims process, with
little in the way of reimbursements. Thus, just as the First World War had
put an end to foreign direct investments in the Soviet Union, in the after-
math of World War II the advent of communism in Eastern Europe meant
the termination of the interwar multinational enterprise investments that
we have discussed in Bulgaria, Hungary, Poland, Romania, and Yugoslavia.
For all practical purposes, the role of multinational enterprises in Eastern
Europe seemed by the start of the 1950s to be ancient history. So, too, in
Asia, there was a similar discontinuity. For instance, the war had cut off
American & Foreign Power from its big stake in Shanghai Power. Once the
war was over, American & Foreign Power sought to reacquire its properties
and reestablish its business, but the communist takeover in China thwarted
Chapter 6: Summary of the Domestication Pattern to 1978 237

those intentions.21 Before the war, there had been smaller British and
French direct investments in electricity supply companies in China, which
also were expropriated by the new Chinese regime. In 1949“1950, the
Chinese communists brought to a conclusion any hope for revival of
private-sector activities (much less foreign private-sector activities) for more
than three decades.
In many countries “ and not necessarily communist-dominated ones “ it
was widely and strongly felt that foreign ownership of electric utilities,
because they were such an essential sector in the economy, was not tenable.
As in France, public ownership was the key alternative. In Austria, public
ownership of electric power generation was established in 1947, blocking
the possibilities of foreign direct investment.22 In Italy, public-sector
activities were greatly enlarged in the electric power sector, and foreign
ownership and control seemed increasingly irrelevant. (Full nationalization
of the electrical industry did not come until 1962, but by then there were
merely the remnants of earlier foreign direct investments.)23
In Spain under Franco (as we saw in Chapter 5), the state had become
committed to a larger role within its economy. At war™s end, So¬na had two
key af¬liates in Spain: Barcelona Traction, Light and Power Ltd. (with
its sister ¬rm, Ebro Irrigation and Power Co.) and Compan±a Hispano-
Americana de Electricidad (CHADE), registered in Spain, but doing no
business there. (All of its assets were in Argentina.) CHADE was the ¬rst to
seem to be in jeopardy. So¬na and Credit Suisse (which was also signi¬cantly
involved) had interests in CHADE and through it in Compan±a Argentina de
Electricidad (CADE). The foreign investors became increasingly nervous as
policies during the Franco regime seemed nationalistic and hostile to inves-
tors from abroad. In 1947, ownership of CHADE was reported to be about
35 percent Swiss and 25 percent Belgian “ that is, roughly 60 percent of the
equity was held by Swiss and Belgian owners; merely 15 percent was Spanish,
with the rest by other nationalities. The Swiss ownership was reported to be
widely held, but with a large holding by Credit Suisse, which had sold
CHADE shares within Switzerland (and appears to have acted on behalf of
Swiss shareholders). Belgian ownership was more concentrated, mainly in the
hands of So¬na, which was the reason why So¬na was thought of (correctly
so) as the controlling in¬‚uence.24
On July 17, 1947, the Spanish government issued a decree designed to
extend state authority. So¬na and Credit Suisse worried that Franco was
aiming to obtain possession of CHADE with its assets in Argentina. ˜˜To
frustrate such designs on its capital CHADE decided to place itself beyond
the jurisdiction of the Spanish Government.™™ Its plan was to take advantage
of a decree enacted several days earlier (July 14, 1947) by the Luxembourg
government, ˜˜allowing all companies formerly domiciled there, but sus-
pended during the German occupation, to be revived.™™ To protect their
assets, the owners of CHADE had used a Luxembourg intermediary,
Global Electri¬cation

´´ ´
Societe d™Electricite (SODEC), from 1938 to 1940. So¬na and Credit Suisse
informed the Spanish government quite bluntly that its July 17, 1947,
decree was ˜˜unsuitable.™™ Their protests got nowhere, and at a general
meeting of CHADE shareholders held in Luxembourg on November 18,
1947, by 61 percent of the votes of the total share capital, the transfer of
CHADE assets to SODEC was approved. Reports explained that SODEC
had been resurrected to execute the functions CHADE could no longer
exercise properly, given the Spanish decree of July 17. After this maneuver,
CHADE was left as an empty shell, and its liquidation would follow. A
Spanish court tried to prevent a meeting (scheduled for January 8, 1949) and
convened in Spain to accomplish the liquidation. Not to be deterred, on
January 26, 1949, at a CHADE meeting held in Luxembourg, liquidators of
CHADE were appointed. The assets of the dissolved CHADE remained
intact “ in SODEC™s possession. The shareholders of CHADE became
shareholders of SODEC, which promised that holders of CHADE bonds
would get the ˜˜same security as heretofore.™™ The shareholders were told that
the Argentine government had recognized the validity of the transfer of the
CHADE assets to SODEC.25 Thus, it seems that from 1947 SODEC, based
in Luxembourg, was the parent of CADE “ and SODEC remained dominated
by So¬na and Credit Suisse. SODEC was fundamentally a paper company.
Decisions relating to Argentina appear to have been made in Brussels, where
So¬na had restored its international head of¬ce after the war.
Meanwhile, in Spain a close friend of Franco™s, Juan March (pronounced
Mark), had been buying up sterling-denominated bonds of the other
important So¬na company in Spain: the So¬na-˜˜controlled™™ Barcelona
Traction, Light and Power. March had made those purchases when the
securities had seemed very cheap, and between 1948 and 1952 he managed
a hostile takeover of Barcelona Traction and its sister ¬rm Ebro Irrigation
and Power. At this time, Barcelona Traction and its subsidiaries supplied
some 20 percent of all electric power in Spain. The way March accom-
plished his coup was Machiavellian. If So¬na ˜˜played games™™ with
CHADE and SODEC, so did March use devious tactics. In an obscure
Catalan courthouse (dominated by March interests), on February 12, 1948,
Barcelona Traction was declared bankrupt. Before So¬na™s management
understood what was happening, March had gained control, and Barcelona
Traction moved from foreign ownership and control to Spanish ownership
and control. The properties were said to be worth $350 million. In the
process of assuming control, March had pushed Barcelona Traction into
bankruptcy. (With Spanish government restrictions on foreign exchange, it
had not paid interest on the bonds that required payment in British
pounds.)26 Next, new shares were issued to the bond owners (mainly
March interests), which now had the equity and control. There was a
diplomatic rumpus, with futile complaints from the Canadian government
(Barcelona Traction was registered in Canada), the Belgian government
Chapter 6: Summary of the Domestication Pattern to 1978 239

(So¬na, which had had control, was Belgian-based), and from the U.S.
government, which thought March™s behavior was imbued with fraud.27
Franco could not have cared less. March changed the name of the company
to FECSA (Fuerzas Electricas de Cataluna).28 So¬na™s management was
´ ˜
very angry and did not give up. On behalf of the Belgian shareholders, the
Belgian government took the matter to the International Court of Justice at
the Hague, which eventually ruled (15 to 1) in February 1970 that Belgium
did not have standing before that court. Why not? Barcelona Traction was
registered in Canada and the shares ˜˜allegedly™™ owned by So¬na/Sidro
were held “ in February 1948, at the time of the declared Spanish bank-
ruptcy “ in the name of an American partnership: Charles Gordon & Co.
This, of course, was done during World War II to protect So¬na™s assets.29
All the corporate disguises had ultimately defeated their purpose, the pro-
tection of assets. In 1972, Moody™s Manual (Utilities) listed Barcelona
Traction for the last time; the stated reason it was dropped was ˜˜no public
interest.™™30 The phrase seemed to convey several meanings, but the bottom
line was that international investors no longer could participate in this
Spanish-owned utility. (Foreign direct investment, which had earlier come
to an end, was now con¬rmed as out of the picture.)
The ˜˜domestication™™ process that took place in noncommunist Western
Europe also occurred elsewhere. In 1947, the year of Indian independence,
its new government pressed American & Foreign Power to give up control
of its properties there. Reluctantly, the American enterprise did so. It had
little choice. By 1951, American & Foreign Power had divested all of its
direct investments in India.31 In Egypt, a new public utilities law was passed
in 1947 that mandated Egyptian state control over foreign-owned ¬rms.
No new concession was to last more than thirty years. Foreign-owned
and -controlled companies remained, but the new legislation left a bleak
future for foreign direct investors in this sector.32 In South Africa in 1948,
the state-owned Escom (Electricity Supply Commission), which had been
formed in 1923, ¬nally took over Victoria Falls and Transvaal Power Co.,
the last of the large foreign direct investment in public utilities.33 In Algeria,
electric utilities were nationalized in 1946, following the pattern in
France.34 In 1947 in Australia, the South Australian state government took
control of the English free standing company Adelaide Electric Supply Co.
Ltd., which seems to have been the only remaining nonresident British
private-sector company in Australia. The others had been taken over by
state governments in earlier years.35 And so it went; around the globe, there
were fewer and fewer possibilities of foreign ownership and control and far
more public-sector involvements.
Latin America, where foreign direct investment had been formidable,
followed the trend of domestication. In 1947, the municipal government of
Cali, Colombia, expropriated the plant of American & Foreign Power.36
This was just one of ten principal communities in Colombia served by
Global Electri¬cation

American & Foreign Power, but it was a foreboding of what was to come.
More serious was what was happening in Argentina. In 1946, the municipal
authorities in Rosario informed So¬na™s af¬liate there that it intended to
take over that property when its concession expired in 1952. So¬na was
also having problems getting appropriate treatment of its Buenos Aires
tramway investment (see Chapter 5).37 Otherwise, so far, there were no
more expropriations in Argentina in the light and power sector beyond
what had happened with the American & Foreign Power properties in
1943“1945, which was also discussed in the last chapter. (Argentina had,
however, nationalized the big British investments in railroads and was
trying to digest that acquisition.) In 1946, the largest foreign investor in
Argentina in electric utilities was CHADE, which supplied light and power
to Buenos Aires. At the same time as the dominant investors in CHADE
were in con¬‚ict with the Spanish government and were rearranging the
European corporate structures to their liking (see above), in Argentina
Peron was threatening to nationalize CHADE™s (and then SODEC™s) giant
assets, principally those of Compan±a Argentina de Electricidad (CADE) “
or, if not exactly nationalize, at least hold down electricity rates so as to
make the company unpro¬table. The Argentine government put restrictions
on remittances. CADE™s earlier con¬‚icts in Argentina (see Chapter 5) sug-
gested that there was a possibility that its concession would be revoked and
its properties con¬scated. Later, subsequent to Peron™s leaving of¬ce in
1955, there would be allegations that CADE had bribed Peronist of¬cials to
keep under raps the accusations made by government investigators against
this foreign-owned utility.38 Not only So¬na™s interests, including those of
CADE, were under attack, so battered did American & Foreign Power™s
management in Argentina feel that in despair in 1950 the U.S. company (the
second largest supplier of electricity in Argentina) offered to sell out to the
Peron government. Negotiations proceeded, only to be suspended in
1952.39 These negotiations were revived in September 1954, but they made
little headway.40 Both CADE™s and American & Foreign Power™s depar-
tures from Argentina were postponed until after Peron was out of power.
With the change in government in 1955, American & Foreign Power™s
management was hopeful. The new Minister of Industry, who had juris-
diction over electric services in Argentine, assured of¬cials of American &
Foreign Power™s so-called ANSEC group of companies that the long-
standing quarrels over payments for the properties that had been expro-
priated in 1943“1945 (and for which American & Foreign Power had never
been compensated) and the operating conditions of the properties still
under ANSEC control would be studied ˜˜in an atmosphere of good will.™™
Corporate euphoria was brief. As the 1955 annual report (dated April 27,
1956) of American & Foreign Power went to press, the company inserted
the following passage: ˜˜[R]eports have been received that the Argentine
Consultative Councils . . . has advised the Government to expropriate the
Chapter 6: Summary of the Domestication Pattern to 1978 241

foreign electric companies. . . . [T]he implications of this development are
not yet clear.™™41
In Porto Alegre in southern Brazil, a subsidiary of American & Foreign
Power owned and operated the street railway system. In May 1952, the
municipal government refused to authorize higher fares. The subsidiary
claimed it could not raise wages, and so the workers went on strike. Not
surprisingly, the municipal government took over the operations of the


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