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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