THE DENATIONALIZATION OF CARIBBEAN BAUXITE: ALCOA IN GUYANA
Aloca: Birth and Growth of the Monopoly.
Alcoa was born as a direct result of Charles Hall’s invention of the electrolitic process of aluminium reduction[2] in 1886. Hall interested a group of Pittsburgh steelmen in organizing and financing a company to operate the process. This company – the Pittsburgh Reduction Company – was formed in 1888 at $20,000 [U.S.] capitalization, and was the predecessor to Alcoa. A year’s operation in a pilot plant proved both the technological feasibility and the commercial potential of the Hall process.
Thereafter the principals in the company seemed to have no doubts that their life-time mission was to promote the growth and profitability of the new aluminium enterprise.
During the first Twenty-one years of the company’s life it was protected from domestic competition by patent rights. And it was during this period -1888 to 1909 – that the basic elements of the strategy for corporate success were well established. These elements were first, a pricing policy which conferred a price advantage on aluminium relative to the established metals; and second, vertical integration. Before the Hall process the metal sold at $8 a pound the company cut the price steadily in the years after its establishment from $5 in 1889 to 33c a pound in 1899, where it was maintained for seven years. Further cuts brought it down to below 20c a pound when the First World War broke out.
These pricing policies were not by themselves sufficient to stimulate the growth of aluminium use at a rate satisfactory to the company. The Pittsburgh company knew of aluminium’s potential uses, but metal manufacturers did not; and in their ignorance, they were reluctant to shift from copper and steel. The company’s move into metal fabricating in the early 1890’s was originally a form of advertisement to manufacturers. But soon the development of this end of the business was pushed in order to provide itself with a market for its own primary aluminium. So successful was this move in promoting consumption growth that by the mid-90’s the company had to move from Pittsburgh in order to open two new smelters at the Niagara Falls, thereby to become the first customer of the new hydro-electric development there. This move presaged the close linking of the company’s smelting facilities with hydro-power which was to be a feature of its operations for the next fifty years.
Forward integration stimulated the growth of demand for the company’s products, and horizontal expansion naturally took place to provide the production to support this growth. Backward integration now took place in order to support both the immediate and the long-term growth of aluminium production. Two kinds of natural resources, both in limited supply, were essential to long-term economical aluminium production by the company. These were bauxite and hydro-power, and the company soon set about acquiring both.
Bauxite was the first to receive the company’s attention. In 1894 a subsidiary leased and began production from deposits in the state of Georgia, the ore being converted into alumina by another company under a contract with the Pittsburgh company. When these deposits approached exhaustion in the early 1900’s the company shifted to the rich Arkansas deposits by purchasing two companies which owned them. The company agreed to sell bauxite from the properties to the former owners so that they could continue using the ore for chemical and other products, but inserted restrictive covenants which precluded the buyers from using the ore for aluminium production or selling it to any other party who would do so. These agreements were for forty and fifty year periods and were subsequently to become one of the sources of contention between the company and the U.S. Government. During this time as well, the company completed its vertical integration by building its own alumina plant at East St. Louis.
The move into hydro-power was initiated at the turn of the century, when a power plant and smelter were built at Shawinigan falls in Canada. Next the company bought out a string of power companies on the St. Lawrence River, the largest of which had been supplying power to its smelter at Massena, New York. After having been blocked in an attempt to develop other St. Lawrence sites, the company then acquired power companies, power rights and privileges along the little Tennessee River and embarked on the construction of a series of dams to harness 400,000 h.p. Thus its quest for hydropower took the company roaming over a large area of the North American continent.
Integration was also carried out into a number of ancillary goods and services.
The Arkansas bauxite mines were connected with the alumina plant by railroad, loading station and river barge. A carbon electrode plant was built at Niagara Falls to supply the smelting plant, and aluminium fluoride and synthetic cryolite facilities were also built by the company. Thus by 1909, when the last patent for electrolitic production of aluminium expired, the Aluminium Company of America was self-sufficient in bauxite, alumina and electric power, and had undeveloped ore and hydroreserves sufficient to support the growth of production for a considerable length of time in’ o the future. In addition its fabricating and selling subsidiaries gave it outlets for a significant part of its aluminium output. From then on, other producers were legally free to use the Hall process to produce aluminium within the United States. Legal access to the process was one thing, but mobilising all the resources to successfully compete with the well-established Alcoa was another. In fact over the next thirty years there is evidence that no less than eight different organizations showed interest in entering, or actually tried to enter, the U.S. aluminium industry. Not one of them even reached the stage of production of aluminium itself.
The nearest of these attempts to reach fruition was that of a French firm, Southern Aluminium Co., which actually began construction of a power plant and smelter at a site in North Carolina in 1914. Bauxite was to come from wholly-owned French mines. The outbreak of War cut the project off from its capital sources, and the organizers turned to U.S. bankers for finance to complete construction. That they failed to raise. money in the U.S. has been attributed by Wallce as due to the power and influence of the Mellon family, one of the most powerful banking families in the U.S. and a major stockholder in Alcoa. The company was forced by circumstances to sell its facilities to Alcoa.
The other attempts all involved U.S. firms or interests. Four of them apparently foundered either because of difficulties in procuring bauxite or because of the sheer enormity of the task of bringing bauxite, power and capital together in sufficient quantities and under circumstances likely to guarantee success. And three others which did succeed in acquiring bauxite and/or power were simply acquired outright by Alcoa itself. Hence some of the attempts to enter the industry did not reach the point of fruition; others which did were absorbed by Alcoa.
Thus Alcoa was left in splendid isolation to enjoy the fruits of the rapid growth of aluminium consumption in the United States. During the period of its patent rights its production had grown from 30 metric tons in 1890 to 15,000 metric tons in 19 JO. From an initial capitalization of $20,000 in 1888, its assets had grown to $28,500,000 in 1910. Subsequent growth was no less spectacular; in 1939, the last year of its full monopoly on U.S. production, production had reached 163,000 short tons and total assets $251 million.
Alcoa’s monopoly and the failure of attempts to enter the industry before World War II became the subjects of some of the most lengthy and famous litigation, and the most searching academic investigation, in U.S. anti-trust history. The company’s first brush with the Government came in 1912, when a “consent decree” was entered against it prohibiting cartel arrangements, restrictive covenants in bauxite and alumina contracts, and all discrimination against competitors. Then between 1925 and 1930 the Federal Trade Commission made a thorough investigation of certain allegations against Alcoa, eventually deciding not to prosecute. In 193 7 came the start of the most important case: the Department of Justice charged that Alcoa effectively monopolised production and interstate trade in metal-grade bauxite, alumina, primary aluminium, and a wide variety of fabricated products, and had the power to fix “arbitrary, discriminatory, and unreasonable prices” in order to squeeze independent fabricators, to extend and maintain control, and to exclude potential competitors.
Judgement originally went against the Government but on appeal Alcoa was indeed found to be an illegal monopoly in the field of aluminium ingot production, and to have practised illegal price squeezes in aluminium sheet. It was also found that Aluminium Ltd. had participated in an international cartel to protect Alcoa from competition from foreign imports. However the court did not order the dissolution of the company as requested by the Government, preferring instead to await the results of the disposal of the Government’s war surplus aluminium plants. In 1950 it was adjudged that effective competition ruled in the industry: the remedy ordered was that common stock ownership in Alcoa and Aluminium Ltd. should be ended.
The court’s findings against the company were therefore limited to the fields of ingot production, the price of fabrications, and cartel arrangements. But there was general consensus amongst research economists that Alcoa’s Wide control over U.S. and Caribbean reserves of bauxite, and over U.S. and Canadian hydropower developments and potentials, in conjunction with the overall financial strength, connections, and well-established marketing position of Alcoa, were important in preventing competition between 1909 and 1939. These questions have received detailed analysis by metropolitan economists because of their significance to issues of monopoly and public policy in the U.S. economy. The same set of events, however, have a totally different significance to Caribbean people. For they had important effects on Caribbean underdevelopment and neo-colonization. It is therefore time for us now to put our own stamp of historical interpretation upon them by discussing them in the light of our own history and fundamental interests.
