THE DENATIONALIZATION OF CARIBBEAN BAUXITE: ALCOA IN GUYANA

Alcoa and the Conquest of Power

From the 1890’s right up until the 1940’s Alcoa, together with its sister company Aluminium Ltd., secured the greater part of hydro-power and hydro-power potentials suitable for aluminium production and available for private development, on the North American continent. This had a number of effects. From Alcoa’s point of view, abundant low-cost power supplies were assured, and potential competition was eliminated. From the point of view of various American states and Canadian provinces, the development of public power for general use was delayed and in some instances blocked by Alcoa’s assertion of private power exclusively for its own use. From the Caribbean point of view, Alcoa and Alcan’s vast North American power resources made them indifferent to the development of the power potential of Guyana and Surinam.

The company’s early use of hydro-power at Niagara Falls, Shawinigan, the St. Lawrence and the Little Tennessee were mentioned earlier in the paper. These moves demonstrate that Alcoa ascribed to control of power not only an economic importance in the narrow sense associated with cost considerations, but also a wider strategic importance in preventing competition. The contracts with the companies at Niagara, Shawinigan and the St. Lawrence contained covenants restricting the sale of power for aluminium production to companies other than Alcoa. These covenants apparently help to explain the failure of the Haskell attempt to obtain power at Niagara and Shawinigan for aluminium production in the early l 920’s.

The initial resort to purchased power was soon replaced with a strategy of direct involvement in hydro-power developments.

As recounted earlier, the: first moves in this direction were on the St. Lawrence and the Little Tennessee rivers in the first decade of the century. By 1914, the company had enough land and rights along the latter river to build its first hydro-electric units there. Darns were completed in this development in 1919, 1928, and 1930, and two more projects were constructed during the second World War. Further developments were envisaged, including one at a site m the Tennessee River (Fontana) with one of the largest and most strategic locations in the entire Tennessee Valley. However the company refused to submit to Federal licensing for this development, and the Tennessee Valley Authority eventually took over the Site to develop it. The history of Alcoa’s involvement in the Yadkin River developments in North Carolina was very similar. Between 1915 and  1940 the company developed three sues on this river, but when the Federal Power Commission required licensing for the development of a fourth Alcoa refused to comply, preferring to let the project fall into abeyance.

By far the most important of its involvements in the hydro-electric field were those involving the resources of the St. Lawrence watershed on both the U.S. and the Canadian side, one of the largest single series of power potentials in the entire North American continent. Alcoa’s involvement began with the purchase of the St. Lawrence River Power Company in 1906, and the acquisition of rights on the U.S. side of the International Section of that river in subsequent years. On that occasion its attempt to develop this huge potential was blocked by both the U.S. and Canadian Governments, who were loath to let such a strategic development fall into private hands. Alcoa let the matter rest temporarily. The next significant event was Alcoa’s acquisition of the bulk of the huge potential of the Saguenay River in Quebec, one of the tributaries of the St. Lawrence and described as “the largest water power site in the Americas available for private development.” This was brought off in 1925 through a coup complete with some of the characteristics of double-dealing and cloak-and-dagger intrigue that is more usually associated with the novels of Ian Fleming.

Power sites on the Saguenay had been acquired by the Duke-Price Power Co. in 1914 or thereabouts. Duke, the chief driving force behind the company, began to look for an industry which would use a great deal of electricity and thereby permit the development of the potentials. Since the sates were not only ideal for hydro-electricity but also fairly near the metal markets of the U.S. East coast, aluminium was the most suitable industry for this purpose. The Duke-Price power company in turn acted as a magnet for interests seeking power to enter the aluminium industry. The first of these were the Uihlein interests which succeeded in acquiring bauxite deposits in both Guyana and Surinam. However, Duke and the Uihleins failed to reach an agreement, and the latter eventually sold out their interests to Alcoa. The second and more serious attempt was made by one George Haskell, who represented a machine tool company which used aluminium, and who was backed by a number of car manufacturers to whom aluminium parts were sold. Originally Haskell proposed to buy power from the Duke-Price company, but subsequently it was agreed that Duke would participate with Haskell in a fully-integrated aluminium enterprise. During 1924 elaborate investigations and preparations involving the employment of former Alcoa experts and an expenditure of $180,000 were made. An aluminium smelter was planned with an annual capacity of 20,000 tons. As for bauxite, Wallace reports that:

“From behind its screen of Canadian directors, the Quebec Aluminium Company, which seems to have been set up chiefly for this purpose, prosecuted a vigorous campaign in England in which it enlisted the political influence of Lorri Beaverbrook and other prominent English and Canadian gentlemen (sic) – which held some promise of resulting in leases of satisfactory bauxite deposits on Crown and colony properties in British Guiana. ”

(My emphasis).

Little did Haskell know that while these elaborate plans were being perfected, Duke was having some very interesting conversations with Arthur V. Davis of Alcoa. To his undoubted consternation, an agreement was reached in 1925 under which Alcoa acquired the power potentials of the lower Saguenay in return for one-ninth of the capital stock and a place on the Board of Directors for Duke. A year later Alcoa also bought a controlling interest in the Duke-Price Power Co., which owned a plant and controlled the potentials- on the Upper Saguenay. The actual and potential power there by acquired was estimated at more than three times the total developed power previously owned by Alcoa, and sufficient to produce over twice the world’s output of aluminium in 1924.

In one stroke Aloca had disposed of a potential competitor, and enhanced its own long-term power position enormously.

In addition it had acquired a strategic position from which it could seek to complete its control of the St. Lawrence watershed by securing the International Section of the St. Lawrence. To this task it now turned its energies and resources, utilizing a tangled – but rational-maza of corporate interests and affiliations on both sides of the border. In an alliance with General-Electric Dupont it had already tried in 1922 to obtain a lease for the development of the U.S. side of the St. Lawrence. Although blocked by the Governor of the State of New York on that occasion, the alliance persisted until 1926 when the Governor ran for re-election mainly on a plat-form of public development of St. Lawrence power, and was overwhelmingly re-elected[3]Alcoa had been thwarted, but in 1930 it acquired an interest in the power company which had become “the dominant power interest in the state of New York”. In Quebec, it was allied with the Shawinigan Co. which “grew to become the center of a web controlling the major power systems of the province of Quebec” and it had interests in the group which developed the Canadian side of the International Section of the St. Lawrence, thereby choking the development of the publicly owned Ontario Power System.

The enormous extent of Alcoa’s hydro-electric interests in North America in this period implied that it would have been contrary to the firm’s interests to consider hydroelectric developments on the river systems of Guyana and Surinam on any significant scale. Hydro-electric schemes typically give rise to economies of scale and it would not have been economical to consider such schemes in the Guyanas unless they were to be on a relatively large scale. To carry out large scale schemes would involve giving up developments in North America in which capital had already been sunk. Alternately, had the North American power potentials not been acquired or had they been sold this would have left the field wide open to potential competitors of Alcoa.

There would of course have been other reasons why the possibility of large-scale hydroelectric developments in the Guianas at that time could hardly have seriously crossed the minds of the men in charge of Alcoa. To build power facilities in the Guianas would have meant locating smelters there. With bauxite operations being carried out there as well, this would have meant that the bulk or a very large part of the company’s facilities would have been located in two relatively distant and foreign countries. For one thing, this would have entailed greater uncertainty and risk in operations from the company’s point of view. For another, it would have entailed a large proportion of the company’s administrative and possibly planning officers, living in the Guianas. Another reason is that it would have entailed a much greater distance between the company’s main production operations and its main market, at a time when communications were much less developed than they are today. Finally, smelting in the Guianas would have required building an alumina plant or plants there. This might have meant writing off Alcoa’s existing plant in East St. Louis, or sacrificing the economies of expanding it. Thus taking the totality of Alcoa’s facilities, strategy and internal economics into-account, it is not difficult to see that certain investment decisions which would have contributed to the development of Guianese resources were simply not in the interests of the firm.

Another interesting point to come out of our examination of Alcoa’s conquest of power is that the clash between the company and the public interest has been evident in the metropolitan countries themselves. The conflict and controversy over private vs. public development of water resources first arose in Alcoa’s case in the first decade of the century, and it continued right up until the l 940’s. In this connection, it is interesting to quote from the New York State Power Commission in the l 930’s:

“The people of New York and Ontario face the necessity of overcoming the influence of this consortium of monopoly interests if they are to realize the wealth producing capabilities of their chief water power resources in the St. Lawrence and Niagara Rivers.”

 Substitute “Caribbean” for “New York and Ontario” and “bauxite” for “Water power” and we have one of the principal issues in Caribbean political economy in the l 970’s.