CAPITAL: The Electrical Industry

September 25, 2007

U.S. companies have played a central role in
the economic development of Mexico since the
mid-1800s. Over the years, however, the nature
of foreign investments and their relationship to
the Mexican bourgeoisie and its state have
changed, along with the changing international
division of labor within the world capitalist
system. The following two articles analyze two
very different but integrally related industries -
electrical power and electrical equipment -
both key to industrial development and the
formation of the industrial proletariat in
Mexico.
Along with the electrical generating systems
of most Latin American countries, Mexico's
electrical power industry was built by foreign
monopolies starting at the turn of the century
and was directly controlled by foreign capital
until it was nationalized in 1960. Hand in hand
with the expansion of electrical power in Mex-
ico grew the investments of U.S. electrical
equipment manufacturers like General Electric
and Westinghouse. The companies controlled
the supply not only of generators, transformers,
engines, turbines and even the light bulbs
necessary for electrification, but also of the
household appliances and other consumer
goods run with electricity.
Thus by 1960 the focus of foreign capital
had already switched from decreasingly lucra-
tive sectors such as mining, railroads and utili-
ties to the dynamic and more profitable manu-
facturing sectors, including the electrical equip-
ment business. This reflected a general shift in
the emphasis of U.S. overseas investments in
the post World War H period from the extrac-
tion of raw materials to the penetration of
domestic consumer markets for manufactured
goods.
Using these two industries as examples, the
following pages analyze this shift in the nature
of foreign investments and related changes in
the role of the Mexican state, in the context of
Mexico's increasing integration into the world
capitalist system.
4 NACLA ReportSet/Ot 17
ELECTRICAL POWER
The first electrical power plants in Mexico
were set up in the late 19th century, primarily by
foreign entrepreneurs who wanted to use this
newly discovered source of energy to operate
their mines, pump their oil wells, and turn their
textile looms, which had been previously depen-
dent upon less efficient water, steam and animal
power.
As it had in the developed capitalist nations, the use of electricity spread quickly and brought
about the rapid modernization of industry, as
well as of the labor force which industrialization
created. On the one hand, it multiplied the
productive capacity of those capitalists who
could afford the costly generators and gave them
an enormous competitive advantage over those
who couldn't. And since these early export-
oriented mine owners, oil concessionaires and
manufacturers were primarily British, French
and North American, the introduction of elec-
tricity greatly increased the influence of foreign
capital, which set out to absorb smaller Mexican
enterprises and employ ever larger numbers of
Mexican workers. On the other hand, electrifica-
tion prompted the introduction of heavy ma-
chinery and the breakdown of the productive
process into smaller tasks, which in turn "simpli-
fied" the tasks of individual workers and made
them slaves to the "tireless" new machines. This
contributed to the extension of the working day
and a higher level of exploitation. 2
By 1910, just prior to the outbreak of the
Mexican Revolution, foreign investors controlled
76 percent of all major corporations - 100
percent of oil, 98 percent of mining, 96 percent
of agriculture, 89 percent of industry. The
United States was the largest investor, with 38
percent of the investment, followed by Britain
with 29 percent and France with 27 percent. 3
Aside from its revolutionary effect of indus-
trialization and imperialist penetration in gen-
eral, the control of electrical generating plants by
foreign capitalists meant that they dominated
the new and lucrative industry of producing and
selling electricity to others - the electrical power
industry. By 1900 most of the major cities of the
republic were purchasing electricity from these
mining and textile concerns at inflated prices.
Five years later a large British company saw the
potential of controlling electric power, and
formed the Mexican Light and Power Co., which
acquired a presidential concession to build a
costly hydroelectric plant at Nexaca near Mexico
City. Once in service, Mexlight (as it was called)
undercut the going electricity rates by 50
percent, and was soon able to absorb all its
competitors in the Mexico City area and expand
to other states.
This monopolization of the electric power
industry in Mexico was but a reflection of
capitalism worldwide, Lenin noted in 1916:
The electrical industry is the most typical
of the latest technical achievements, most typical of capitalism at the end of the nineteenth and beginning of the twentieth centuries ... The industry has developed most in the advanced of the new capitalist countries, the United States (American General Electric) and Germany (German General Electric).s
Lenin went on to observe that the capitalist
combines first gained a monopoly stranglehold in
their own countries, then through foreign invest-
ment spread their control internationally. Thus
by as early as 1896, all the power companies in
Mexico, including Mexlight, were obliged to
purchase their generators, basic technology and
even light bulbs from General Electric (U.S.)
because of its monopoly on technology.
MONOPOLIES & NATIONALISM
Mexlight and General Electric grew in size and
importance from 1900 to 1910. GE had a
monopoly on the electrical manufacturing and
technology market and Mexlight developed a
practice of favoring other foreign companies by
giving them cheaper rates than those charged to
Mexican manufacturers and consumers. This
control produced a growing antagonism toward
the foreign trusts on the part of Mexican
capitalists, who found themselves subordinated
to the foreigners, and of consumers who were
angered by high electricity rates.
The nationalism which this antagonism engen-
dered in the new industrial bourgeoisie was part
of the force behind the 1910 Revolution which
toppled the four-decade-old dictatorship of
Porfirio Diaz and pushed the Mexican state into
15 years of chaos. Yet in spite of the nationalistic
Revolution, the relationship between the new
government and the electrical power companies
and foreign investors in general did not change
substantially until decades later. Why was this
so?
Sept./Oct. 1977 56
NACLA Report
The class which emerged in power after the
Revolution was a new industrial bourgeoisie
whose conflicts with imperialism were not over
the further development of capitalism - that
issue was settled - but over who would control
that development and how its benefits would be
divided. But as a class the new bourgeoisie was
weak and its emerging state still unstable. The
only forces upon which it would have depended
in an all-out confrontation with the U.S. were the
working class and peasantry. And while the new
state attempted to build a base of support among
these classes through agrarian reforms and
progressive labor legislation, the bourgeoisie
feared the uncontrolled power of the popular
classes more than it feared imperialism. In the
end, its relative weakness forced it to accept
accommodations with foreign capital which left
the U.S. monopolies in the saddle of key
industries, among them electrical power.
The relative power of U.S. capital at the time
is evidenced by the rapid expansion of the U.S.
economy in general, particularly its foreign
investments in Latin America. This investment
doubled to $3.5 billion after World War I as the
U.S. replaced England as the dominant imperial
power in the hemisphere. One of the largest
investors of the period was the Electric Bond and
Share Co. (Ebasco), a GE-controlled holding
company. Between 1923 and 1928 Ebasco
purchased nearly all the electric power com-
panies in Mexico except those held by Mexlight
in the Mexico City area - leaving Mexlight and
Ebasco the only "competitors" in this crucial
and highly monopolized industry. General Elec-
tric began manufacturing in Mexico in 1929 to
supply the growing market created by Ebasco,
and by using the same price-fixing techniques
they expanded rapidly together. Electrical power
had become the single largest sector of foreign
investment by 1940 and Mexico had built the
single largest electrical power utility in Latin
America.6
THE INDUSTRIAL WORKING CLASS
As foreign capital consolidated its control of
the electrical power industry in Mexico, larger
numbers of trained laborers and electricians were
naturally required to construct and maintain the
power plants as well as to connect the electricity
to the growing number of factories, trolley-car
lines, public lighting and individual consumers.
Only a generation before, most of these men and
women of the new industrial proletariat had
worked the land, but the spread of U.S.-domi-
nated agribusiness had broken up peasant land
holdings and pushed them into the quickly
growing cities. 8 As their numbers grew and the
work pace quickened, their collective sense of
exploitation led the electrical workers to look to
each other for some defense against the com-
panies. They formed mutual aid societies and
began to talk of trade unionism - influenced by
the ideas of anarcho-syndicalism brought by
Spanish immigrants and by what they heard of
the heroic activities of the Wobblies (IWW) in the
neighboring United States and of the Flores
Magon movement along the California border.'
As real wages declined after 1900, strikes and
mobilizations became more frequent, despite the
determined opposition of the electrical com-
General Electric supplied the technology for Mexico's first factories to use electricity, as shown in this 1925 plant.
6 NACLA ReportSent/Oct. 1977
7
panies and other employers. The first league of
electricians was secretly formed in Mexico City
in 1907 by employees of the foreign-owned
Mexican Gas and Electric Co., and became part
of the growing grassroots movement in opposi-
tion to the dictatorship ofPorfirio Diaz.
The domination of Mexlight and Ebasco over
Mexico's electric power industry (and their
practice of high rates and low wages) deepened
contradictions between the companies and the
electrical workers. In 1916, in the midst of the
chaotic Revolution, the electrical workers of
Mexlight paralyzed Mexico City with a general
strike. By the mid-1920s important unions of
electrical workers had been formed in both of the
foreign-owned electrical companies: the Mexican
Electrical Workers Union (SME) in Mexlight and
a half dozen smaller unions in the provincial
Ebasco system. The unions were aided by the
need of the government in these years to seek
support from labor in its dealings with the
foreign companies, and consequently were at
times given free rein in their negotiations with
the foreign utilities.
Aside from strikes, the most effective weapon
used by the electrical unions against the com-
panies was public opinion. Each time there was a
contract to negotiate, the unions were able to
mobilize thousands of supporters by simply
pointing to the foreign ownership and monopoly
power of the companies, documenting excessive
capital withdrawal from the country in the form
of profits, interest payments, executive salaries,
etc. Most importantly, they drew attention to
the excessive rates charged consumers, and were
the first to call for the nationalization of the
companies. These agitational issues naturally
gained them support among broad sectors of the
society who saw their economy dominated by a
handful of foreign firms.
These factors, along with the leverage af-
forded the electrical workers by the strategic
importance of their industry, allowed the electri-
cal unions to win the highest wages in the
country with the most favorable contracts. The
higher wages and cooperation from the post-
revolutionary governments laid the basis for
what these trade unionists called "revolutionary
nationalism," which characterized the Mexican
state as a possible ally in struggles against foreign
capital.
The Great Depression of 1929 seriously
aggravated the developing contradictions among
the power companies, the workers and the
government and forced the Mexican state to play
a much more aggressive role in promoting and
stabilizing economic growth. The bankruptcy of
many businesses, soaring unemployment, public
sentiment against the electric rates and general
anti-Yankee nationalism all pressured the govern-
ment to take some steps towards regulating the
foreign power companies.
The companies themselves responded to the
Depression by trying to squeeze higher electric
rates from the smaller and medium industries and
private consumers, since many of the largest
consumers like the mining industry were para-
lyzed. Small industrialists, merchants and citi-
zens formed a national organization to pressure
for lower rates, and in some areas where service
was cut off because of non-payment, angry
consumers organized "defense battalions" to
reconnect the lines.
The government at first delayed taking action
against the power companies, but was finally
forced by popular pressure to reduce the electric
rates in 1932. Furthermore, under the populist
regime of Lazaro Cardenas (1934-40), the
government set up the Federal Electrical Com-
mission (CFE) and passed laws which empow-
ered the CFE at first to regulate and eventually to
take over the power companies, although the
latter did not occur until 1960. It was also during
this period (1938) that a volatile dispute erupted
between the militant oil workers and the
intransigent U.S. and British-owned oil com-
panies, which led to the nationalization of this
industry. All these factors led the foreign
electrical power companies to halt further
investments for the next ten years.
IMPORT SUBSTITUTION-
CONTINUED DEPENDENCE
The governments representing the ruling class
after 1940 quickly abandoned the populism of
Cardenas, but they used the strengthened state
apparatus to generate more profits for the native
and foreign capitalists. The effect of the policy
adopted by the state was not to accumulate
profits in the state enterprises (oil, electrical
power) but to allow for higher profits in the
private sector by offering industry cheap rates on
oil, railroad transportation and electricity.
This was a complementary policy to the
general economic strategy of speeding industrial-
ization by what was called "import substitu-
Sept./Oct. 1977 7B
NACLA Report
tion"; i.e., rather than import manufactured
goods from the U.S. and other industrialized
nations, these goods would be produced in
Mexico with the aid of state subsidies and
protectionist trade barriers - or so the plan was
conceived. The intention was to lessen depen-
dency on U.S. industry and fortify the Mexican
private sector. For several reasons, however, the
strategy failed to create an "independent"
national bourgeoisie - but rather furthered its
junior partnership with U.S. capital. In the first
place, the strategy required cooperation from the
transnational corporations (TNCs) who alone
possessed the capital goods, financial resources,
and technical know-how to set up the new
industries. Wielding their power to the best
advantage, the TNCs moved in after World War II
and dominated the new manufacturing sector
(see Table 1). Secondly, the state subsidies to
industry seriously depleted the financial re-
sources of the state and forced it to borrow
heavily from abroad. The full implications of this
subordination to international capital are only
now becoming clear and will be discussed below.
In the third place, Mexican capitalists, naturally
more interested in profits than national sover-
eignty, found it far more lucrative to invest in
stable foreign companies than risk competing
with them as independent industrialists. And
lastly, far from becoming less dependent upon
imports, Mexican industry still had to import the
more costly "capital goods" such as heavy
equipment and technology to produce electrical
generators.
Year
1940
1950 1960
1970 1973
TABLE 1
Foreign Investment in Mexico 1940-1973
(millions of dollars)
Electri- Electri- cal
cal Manufac- Total Power turing
449 141 n.a. 566 136 7
1,081 15 52 2,822 3 215 4,677 3 n.a.
Manufac- turing Industry
32
148 602
2,083
2,768
Source: Sepulveda, Chumacero Charts I-III, and Victor Bernal, Table 3.
"Thus by 1950 it was obvious that the active
role of the Mexican state was not an obstacle to
imperialist domination, but rather a necessary
condition of foreign investment." 1I The strategy
designed to keep the wolf away from the door
had, in fact, invited him to the dinner table.
The capital required for the continued expan-
sion of electrical power plants and to maintain
the subsidy policy was enormous. From 1945 to
1959 the CFE, backed by the Mexican govern-
ment, borrowed some $350 million from the World Bank for major installations. Ironically,
the CFE did not sell the electricity directly to
industry and consumers, but instead sold 75
percent of it to the private foreign utilities who
still controlled the distribution systems. Accord-
ing to one firm, profits from this arrangement
alone netted Mexlight over $6 million in 1955.12
Even with this government support, however,
profit levels were not high enough to satisfy the
foreign power companies, given the government
regulations maintaining low rates for industry. In
an effort to pressure the Mexican government to
let them raise the rates, the companies appointed
several prominent personalities to their boards of directors who lobbied in Washington D.C. where
the CFE loans were negotiated. Mexlight (then
40 percent controlled by the European Sofina
group) named George Messersmith, a former
ambassador to Mexico, to its board. And the
chairman of the board and chief executive officer
of Mexlight from 1955 to 1959 was none other
than General Maxwell D. Taylor, the former U.S.
Army Chief of Staff and later U.S. ambassador to
South Vietnam! 13
During their time in Washington D.C. the
World Bank mounted pressure on the Mexican
government for higher electrical rates, but this
only aroused resentment among Mexican offi-
cials. Thus by the late 1950s it became clear that
new rate increases would not be allowed and so
the companies began to consider selling their
property to the Mexican government. The
nationalization of Mexlight and Ebasco finally
came in 1960 amid great fanfare and nationalistic
enthusiasm. The event was hailed as a triumph of
the government over foreign interests, and the
electrical unions likened then-President Lopez
Mateos to Cardenas who had nationalized the oil
industry in 1938.
The reality, in fact, was quite different. The
government paid a total of $122 million for the
outdated installations, far above their book
8 NACLA ReportSept./Oct. 1977 9
value, and there is evidence that, at least in the case of Ebasco, the initiative came from the company itself. Ebasco was divesting its electri- cal power interests all over Latin America and reinvesting in the more profitable manufacturing companies (including Aluminum Co. of America [Alcoa] in Mexico) and high interest-bearing government bonds. In sum, the nationalization was a move by the state to acquire an industry
that was stagnating and at the same time central
to its strategy of economic growth. The essence
of the farce was captured by a nationalistic
historian who wrote:
We owe nothing to the electric energy companies. What they have earned is ours, it has been paid with by the sweat and hunger of the Mexican people. Yet now we are forced to pay a ransom to the kidnappers of our wealth. 14
The nationalization did accomplish several
things, however, from the perspective of stimu-
lating capitalist development. First it temporari-
ly preserved the internal tranquility of the
country, especially by pacifying the electrical
unions and the left, which were both calling for
the nationalization. It also came immediately
after the U.S. imposed its trade embargo on
revolutionary Cuba, and this appeased the strong
pro-Cuba sentiments among nationalists in
Mexico. Secondly, it opened the way for further
credit from the international lending institutions
for future electrification plans. And thirdly, the
soft treatment afforded the foreign electrical
power companies was proof to all foreign
investors that the Mexican government would
"play fair" - a necessary concession if Mexico
wanted to continue attracting foreign investors.
The story of the electrical unions' subsequent
attempts to unify and their leading role in
mobilizing the working class is a crucial one, and
is highlighted in Part II of this Report. What
concerns us at this point is what happened to the
Federal Electrical Commission and the national-
ized electric power industry it came to control.

ELECTRICAL INDUSTRY
2. I-or an in-depth discussion of industrialization
and the work process see Karl Marx, Capital, Vol. I,
especially chapters 14. 15, 17; and Harry Braverman,
Labor and Monopoly Capital, especially part II,
Monthly Review Press, 1974.
3. Victor Bernal Sahagun, The Impact of Multi.
national Corporations on Employment and Income:
The Case of Mexico. International Labor Office,
Geneva, 1976, p.3 1.
5. V. I. Lenin, Imperialism, The Highest Stage of
Capitalism, Foreign Language Press, Peking, 1970, p.
79.
6. Businesslnternational, Feb. 25, 1966.
8. See NACLA's LAER, "Harvest of Anger:
Anglo-Imperialism in Mexico's Northwest," especially
Part I for more on the affect of agribusiness on the
peasantry.
9. For more on the Magonistas see the recently
published, Juan Gomez-Quinones, Ricardo Flores
Magon y el partido liberal mexicano: a eulogy and
critique, Monograph No. 5, Chicano Studies Center
Publications, UCLA, 1977.
11. Juan U elipe Leal, Mexico: estado burocracia v
sindicatos, Ediciones Caballito, Mexico, 1975, p. 57.
12. Mario Gil, Nuestros buenos vecinos, Edicion
Azteca, Mexico, 1972, p. 2 3 8.
13. Miguel S. Wionczek, El nacionalismo mexicano
y la inversion extranjera, Siglo XXI, Mexico, 1967.
14. Mario Gil, op. cit.,p. 240.

Tags: Mexico, electric power, Mexllight, GE, foreign investment


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