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Global strategies, differing experiences. Electricity companies in two late-industrialising countries: Spain and Argentina, 1890–1950

2013; Taylor & Francis; Volume: 56; Issue: 5 Linguagem: Inglês

10.1080/00076791.2013.837892

1743-7938

Norma Silvana Lanciotti, Isabel Bartolomé Rodríguez,

Transport and Economic Policies

AbstractThe article compares the performance and profitability rates of electric utility firms in Spain and Argentina from the early period of global electrification to the period following World War 2. It aims to analyse the relationship between the investment strategies of international electricity companies and local conditions in two late-industrialising countries, and evaluate its impact on the structure and development of both electric utility systems. The study finds similar long-term trends in profitability as a result of the global strategies of multinational holding companies; nonetheless profitability rates varied greatly from one country to another. Rates were higher in Argentina as foreign firms controlled large systems in most dynamic urban areas. In contrast, the increasing investment of local firms in electric utilities paved the way to a less profitable but more equitable electricity system in Spain.Keywords:: electric utilitiesholding companiesglobal electrificationmultinational strategiesprofitabilityArgentina, Spain AcknowledgementsEarlier versions of this paper were presented to the XXII Jornadas de Historia Económica Argentina (2010), to I Jornadas Internacionales de la Revista de Historia Industrial (2010) and to the X Congreso Internacional de la Asociación Española de Historia Económica (2011). We thank Carlés Sudrià, Antonio Miguel Bernal, Josean Garrués, Santiago López y Beatriz Solveira for their comments. We are also grateful to Sergio Arelovich and María Cristina Wirth for their advice on the procedures of inflation adjustment in the analysed period. Any errors are the responsibility of the authors.The authors especially thank the institutions that supported this comparative research: The British Academy and The Fulbright Commission for Argentina; Banco de España, European University Institute (EUI) and Fundaçao para a Ciencia e a Tecnologia portuguesa for Spain.Notes 1. CitationCipolla, The economic history of world population; CitationWrigley, Continuity, chance and change; CitationMalanima, "Energy crisis and growth." 2. CitationRubio and Bertoni, Energía y desarrollo en el largo siglo XX; CitationBertoni, Román, and Rubio, "El desarrollo energético de España y Uruguay"; Bartolomé, "La industria eléctrica en España." A recent study of Latin American electrification in CitationTafunell, "La revolución eléctrica en América Latina," 327–59 3. Primary sources used in this research are held in Widener Library (Harvard University), Baker Library (Harvard Business School), Guildhall Library (London) and Archivo Histórico de Hidrola en Alcántara (Cáceres). 4. Bartolomé and Lanciotti, Citation"Análisis comparado." 5. Bartolomé, Citation"La red nacional"; Bartolome and Lanciotti, "Análisis comparado", 5–14. 6. CitationHausman, Hertner, and Wilkins, Global Electrification. 7. CitationHertner, "Financial Strategies"; CitationSegreto, "Le nuove strategie," 861–907; CitationBroder, "L'expansion international," 65–77. For Canadian companies, see CitationArmstrong and Nelles, Southern Exposure; CitationHertner and Nelles, "Contrasting Styles," 191–214. For American companies, see CitationHausman and Neufeld, "U.S. Foreign Direct Investment," 361–90. For a comprehensive overview see CitationHausman, Hertner, and Wilkins, Global electrification. 8. CitationHertner and, Nelles, "Contrasting Styles"; CitationHausman, Hertner, and Wilkins, Global Electrification, 95–105; CitationSofina SA, "Sofina's participations"; CitationBrion and Moreau, Inventaire des archives, XVII. 9. CitationHertner, "Financial Strategies," 145–59; CitationSchroter, "The German Question," 375–80. 10. CitationHertner, "Globale Elektrifizierung zu Beginn des 20," 47–80. 11. Columbus also financed a group of small electric utility companies in several Argentine provinces, all of them managed by CIAE's board. 12. CitationTortella, A Guide to Sources of Information; CitationLoscertales, "Inversiones alemanas en España." 13. CitationHertner and Nelles, "Contrasting Styles." In 1897, Schuckert and Sociedad Española de Carburos Metálicos founded Electro-Química de Flix, reorganised as Siemens-Shuckert Industria Eléctrica in 1910. 14. CitationHertner and Nelles, "Contrasting Styles"; CitationDoria and Hertner, "Urban Growth"; CitationAlcalde Ceravalls, El cas "Barcelona Traction" 79. Another company was founded in 1911, Energía Eléctrica de Cataluña, merged into Barcelona Traction later. 15. CitationMinisterio de Agricultura, Industria, Comercio y Obras Públicas, Estadística de la Industria Eléctrica en España; CitationGarrues, "Electricidad e industria en la España rural," 97–138. As Garrues has recently noted, some of these peripheral systems remained profitable during the Post-war era. CitationGarrués-Irurzun, "Traditional Electricity Systems," 245–85. 16. The corporate strategy of this bank was examined by CitationValdaliso, "Los orígenes de Hidroeléctrica Ibérica," 97–129. 17. The group took part in at least 27 firms, investing more than 850 million pesetas in 1930. CitationTedde and Aubanell, "Hidroeléctrica Española," 193–278. 18. Bartolomé, Citation"Un holding a escala ibérica," 119–51. 19. Anuario Financiero y de Sociedades Anónimas de España Citation1925; Bartolomé, Citation La industria eléctrica en España , Anejo 3. Spanish entrepreneurs have been analised by CitationNuñez Romero-Balmas, "Empresas de producción," 199–227 and CitationNúñez Romero-Balmas, "Last years," 483–504. Also see CitationAlcalde, El cas "Barcelona Traction, 75. 20. Bartolomé, La industria eléctrica. 21. SOFINA and Motor Columbus raised American capital in the 1920s. Additionally, two new holding companies were created: European Electric Corporation (EElC, Montreal, 1930), acquiring shares in SADE and Compagnie Ital-Belge, Companie Europeenne por Enterprises d'Electricité (Europel), and Iberian Electric Ltd. CitationHausman, Hertner, and Wilkins, Global electrification, 192. 22. Lanciotti, Citation"Foreign Investments in Electric Utilities," 503–28; Lanciotti, Citation"Ciclos de vida," 403–38; CitationHausman and Neufeld, "U.S. Foreign Direct Investment," 361–90. 23. General Electric launched Sociedad Ibérica de Construcciones Eléctricas and General Eléctrica española, proyecto al que se uniría AEG. 24. According to Broder, the Dictatorial Government of Primo de Rivera (1923–30) granted subsidies to dam projects, which attracted Swiss and American investments; however Bartolomé considered that the results were barely relevant. CitationBroder, "Les investissements suisses," 441–61; Bartolomé Citation"¿Fue el sector electrico," 789–818. 25. CitationBroder, "Les investissements suisses." Elektrobank's stockholding was highly diversified in 1938–39: 6.6% in Spain and Portugal. 26. 73% of total stocks were registered in Spain, but they represent investments in Africa, Portugal, Andorra and Argentina. 27. CitationCámara Oficial de Productores y Distribuidores Electricidad [COPDE], Datos Estadístico – técnicos. 28. The most common index to measure market concentration is Herfindahl-Hirschmann Index (HHI), defined as the sum of squares of the market share of the largest firms in an industry. A HHI above 2500 shows high concentration, and indexes below 2500 indicate moderate concentration. Unfortunately, we do not have data on total electricity sales in Argentina and Spain for the period; but we get a proxy based on the production share of electricity firms over total electricity production in both countries. A HHI of 3034 reveals that electricity industry in Argentina was highly concentrated, while the Spanish electricity market was more competitive with a HHI of 1800. 29. Lanciotti, "Foreign Investment." 30. CitationPrados de la Escosura and Roses, "Long-run Estimates," Table 5, 35. 31. CitationNuñez Romero-Balmas, "Las empresas eléctricas," 127. 32. However, most electricity companies supported Franco during the Civil War. CitationPueyo, "La post-guerra." 33. Hidroeléctrica Ibérica and Saltos del Duero merged to create Iberduero in 1944. 34. CitationNúñez Romero-Balmas, "Last years". 35. Other factors affecting electrification are examined by [name deleted to maintain the integrity of the review process], "Análisis comparado." 36. CitationHausman and Neufeld, "The Structure and Profitability," 225–43. On calculating profitability, see CitationTafunell, "La rentabilidad financiera," 71–111. 37. The integration of electricity networks came late for both countries, after the 1970s. In Argentina, electricity networks only covered isolated urban areas and the electrification of rural areas started in the late 1950s. In Spain, private companies started connecting some regional markets with transmission networks in the late 1930s, but integration was delayed because it made no business sense to connect small systems with similar supply-demand structures. 38. CitationRubio and Bertoni, Energía y desarrollo en el largo siglo XX. 39. CitationLoscertales, "Inversiones alemanas." 40. The advantages of hydroelectric power were promoted by specialised magazines like Houille Blanche, Revue Général de l'electricité and Electrical World. 41. Hertner and Nelles argued that Barcelonesa was sold because its profitability was lower than other AEG investments. CitationHertner and Nelles, "Contrasting Styles," 198. 42. Industry's contribution to Argentina's GDP was 27% in 1910–14, and 25% in 1925–29. CitationDiaz Alejandro, Essays on the economic history. Also see Colin CitationLewis, "Industry before 1930." For Spain, see CitationPrados de la Escosura, El progreso económico, Table, A.11.3. 43. Tramways were the main consumers of electricity in Argentina, while industry accounted for two-thirds of total consumption in some Spanish regions as Cataluña, País Vasco and Comunidad Valenciana. Bartolomé and Lanciotti "Análisis comparado," section I. Tables 2 and 3. 44. For the structure of electricity markets in both countries, see Bartolomé and Lanciotti "Análisis comparado." 45. Per capita electricity consumption was similar in both industrial regions before the Spanish Civil War, but while in Catalonia generation depended on a large network, that combined energy supplies from different and distant utilities; in the Basque Country, small generation systems were able to supply regional consumers such as workshops and undertakings. 46. To calculate ROE and ROA, we consider net profits before tax. Equity, Assets and profits are book values, denominated in the currency of firms' headquarters (pounds sterling, Belgian Francs, German Marks), except in the case of those operating companies registered in the host countries, which values denominated in Argentinean pesos and Spanish current pesetas. We use book values based on the fact that the currency of the European firms fluctuated greatly during the interwar period, and electricity companies rarely deflated their assets before World War II. Assets and profits are not inflation-adjusted in ROA and ROE, as price fluctuations did not have much influence in profitability trends, except for brief periods of high inflation (1936–40, in Spain; 1942–43 and 1948–50 in Argentina). More details in Bartolomé and Lanciotti "Análisis comparado," Apendix b. 47. Profitability dropped even though profit shares increased at the expense of wages after the Civil War, as Vilar has recently noted. CitationVilar, Los salarios del miedo, table 4.6, 274. 48. Spanish companies applied very low amortization rates and their accounting procedures tended to overestimate profitability ratios. See Bartolomé and Lanciotti "Análisis comparado," Apendix a. 49. According to Alcalde Ceravalls, profitability of investment would have been even higher, up to 84% in 1930, because part of the share capital was invested in securities. CitationAlcalde Ceravalls, El cas "Barcelona Traction," Table 3, columns 6 and 31, 111–12. 50. The Spanish companies selected for our sample led large systems. The Argentinean sample is more comprehensive, including subsidiaries of international holding companies (CATE-CHADE-CADE, SER, CIAE, Electricidad de los Andes, Electricidad del Este, Electricidad del Sud, Central Argentina de Electricidad, Electricidad del Norte), and also British companies operating in secondary cities (Córdoba Light & Power, Hidroeléctrica de Tucumán, River Plate Electricity and Electricidad de la Provincia de Buenos Aires (acquired by SOFINA in 1929). 51. From 1919 to 1926, Belgian franc depreciated 309% against the Argentine peso. 52. The exchange rate depreciation, recorded in proft-and-loss statements, pushed profits down in the 1930s, as shown in Figures 2 3. 53. In war periods, a drop in the profits of electricity companies in Argentina was caused by the high cost of vegetable-based fuel which replaced British coal. 54. CitationWilkins, Comparative Hosts, 18–50; CitationPollard, "Capital Exports 1870–1914"; CitationChapman, "British-Based Investment Groups"; CitationLluch and Lanciotti, "Las empresas europeas". For the analysis of political risk and multinational strategies, see CitationJones, Multinational Strategies and Developing Countries, and also CitationJones and Lubinsky, "Managing Political Risk". To define political risk and country risk, see CitationBerg and Guisinger, "Capital flows." 269–74.Additional informationNotes on contributorsNorma S. LanciottiNorma Lanciotti is adjunct associate professor of Economic History at the Department of Economics of the National University of Rosario and researcher at the National Scientific and Technical Research Council of ArgentinaIsabel BartoloméIsabel Bartolomé is Lecturer of Economic History at the Department of Economics and Economic History, University of Seville.