The emergence of the electrical industry commands the attention of economic historians for three reasons.Footnote 1 First, the industry in all advanced countries grew much faster than its host economy, starting from virtually nothing in the late 1870s and reaching substantial size in the more industrialized economies by 1913. This combination of persistently increasing size and still rapid growth meant the industry came to have a material impact on macroeconomic performance—an impact that continued to grow for another half century.Footnote 2 Second, the bulk of the industry's rapid growth from the mid-1880s onward was driven by emerging power applications in transportation and industry rather than simply lighting, although demands for the “light of luxury” and other consumer uses continued to grow quickly and remained significant. Hence the speed and skill with which electrification evolved, providing an ever-growing range of applications throughout the economy, came to have a large and increasing impact on productivity.Footnote 3 Finally, progress in electrification depended on an understanding of underlying scientific principles. Thus, electrical companies soon joined their chemical-industry counterparts in forging close links with academic scientists and engineers, thereby engendering much high-level human capital formation and enhancing subsequent technological opportunities, leading some historians to speak of industry-driven science rather than science-driven industry.Footnote 4
Electrification in Britain proceeded remarkably slowly and hesitantly; as John H. Clapham tactfully put it, “it was agreed that Britain was not the pioneer.”Footnote 5 By 1890, Britain clearly lagged behind the United States and Germany in development of the new technology in terms of the number and efficiency of central generating stations; the extent of non-lighting applications of electricity; the miles of electrified rail and tram tracks; the size and profitability of electrical companies; the extent of electrical exports; and, above all, the intensity of experimentation and innovation, particularly in transportation, alternating-current distribution, motor design, and factory electrification.Footnote 6 Moreover, the lag that had emerged by 1890 continued to widen rather than narrow; Ian Byatt has shown that after 1895 the British electrical-manufacturing industry is better regarded as an offshoot of the American and German industries than as an industry in its own right.Footnote 7 Thus, given the key role of electrical manufacturers in establishing and equipping electricity suppliers, British supply undertakings—excepting the large and technologically progressive Newcastle-Upon-Tyne Electricity Supply Company (NESCo)—consistently fared badly in international comparisons, encumbering most British electricity users with high costs and poor service.Footnote 8 This performance was as surprising as it was disappointing.
When the industry emerged in the late 1870s, bursting into public view in international exhibitions held in Paris in 1877 and 1878, Britain was easily the wealthiest country in Europe and home to the world's largest, deepest, most accessible, and most sophisticated capital markets.Footnote 9 Innovation in the birthplace of the Industrial Revolution remained strong: in December 1878, Joseph Swan (1828–1914) gave a public demonstration of an incandescent lamp virtually simultaneously with Thomas Edison (1847–1931). Wealthy British consumers—such as Lord Salisbury, a future prime minister, and Sir William Armstrong, a prominent industrialist—were among the first in the world to have their private residences lit by (Swan) incandescent lamps. The British scientific base was notably strong: at Cambridge, James Clerk Maxwell (1831–1879), building on the pioneering work of Humphrey Davy (1778–1829) and Michael Faraday (1791–1867), had in the 1860s provided a powerful theoretical basis (indispensable for engineers) for understanding the related phenomena of electricity, magnetism, and light. The Cambridge-educated polymath William Thomson (1824–1907; ennobled as Lord Kelvin in 1892) augmented Maxwell's work. Outstanding British engineers such as John Hopkinson (1849–1898) and Charles Merz (1874–1940) were soon eagerly sought as consultants by electrical firms worldwide. With extensive capital markets, venturesome affluent consumers, inventive entrepreneurs, capable scientists, and skilled engineers, wealthy urban Britain was poised in 1880 to be among the leaders of electrification. But this did not happen.
We seek to understand why this early promise was not fulfilled, as follows. The next section examines the limitations of the two reasons generally given to explain this disappointment: inept government regulation and the competition of entrenched gas lighting. While most accounts of the British electrical industry's early days mention in passing the spectacular 1882 flood of short-lived stock market flotations of electrical companies, we believe the significance of this disruptive episode has been seriously neglected, at the cost of misunderstanding the industry's troubled growth. In the following section, we present the public financial data generated by Britain's capital markets to identify the groups raising money from the general public in 1882, when that money was raised, the amounts raised (which were large by international standards), and the returns subsequently earned (which were not). In the next section, the available daily share-price data are used to examine in detail the critical events of 1882, which had an enduring effect on the British electrical industry. The penultimate section considers the troubled aftermath of Britain's intense but short-lived electrical-market boom and is followed by the conclusion.
Explanations
Given the significance of the electrical industry, historians have naturally sought to understand Britain's unexpectedly stunted development. The explanation currently proving most persuasive among historians is that inept government regulation, in the form of the 1882 Electric Lighting Act, hobbled the industry from birth.Footnote 10 This act, under deliberation since 1879, was finally passed by Parliament on August 8, 1882, after three readings. Its motivating rationale was to encourage the industry's development while avoiding the abuses that gas and water companies had long practiced by exploiting grants of irrevocable local monopolies to charge exorbitant prices for poor service, constrained only by weak regulation.Footnote 11 The 1882 act sought to avoid prescribing whether private companies or local authorities should provide electricity. The act gave the newly expanded Board of Trade (BoT) power to approve electrification schemes by means of provisional orders (POs), a streamlined, low-cost procedure to gain parliamentary consent for public works. A PO, once confirmed by Parliament, granted an exclusive concession to either a company or a local authority for the public supply of electricity in a limited area. While the act encouraged local authorities to apply for POs or shorter-term licenses and required companies to negotiate with those authorities before directly seeking a PO itself, it also sought to prevent local authorities from blocking private companies unreasonably (say, to protect municipal gas undertakings). When granted, POs gave companies rights to excavate streets (normally the prerogative of municipalities) to lay cables. However, company POs also embedded an option enabling local authorities to purchase, after a prescribed period of time, the business at the market value of apparatus then in place, without any allowance for goodwill or future profit. This provision was imposed to limit the potential for monopolistic abuse by companies awarded a PO.Footnote 12
However, not all aspiring electricity companies believed a PO, with its anticipated complications, was necessary. Some sought to circumvent it by avoiding the streets and instead stringing wires from building to building—as Sir Coutts Lindsay did with the generator in his Bond Street art gallery supplying electricity to his affluent neighbors.Footnote 13 Others simply pressed ahead without a PO and supplied electricity where they perceived good prospects—as Robert Hammond did on Britain's south coast, where he successfully established three central generating stations early in 1882.Footnote 14 Still others, such as companies operating in Liverpool and Colchester, secured the cooperation of their local authorities and provided electricity without first securing a PO.Footnote 15 Nevertheless, the possibility of the compulsory purchase of a private company on stringent terms by a municipality was the most contentious of the new act's provisions.Footnote 16
In the early summer of 1882, the testimony of distinguished experts (open to cross-examination by counsel) before the parliamentary committee deliberating the lighting bill had unanimously concluded that twenty-one years was adequate to attract private investment and was widely considered “fair.”Footnote 17 However, by 1884 prominent leaders of the electrical industry had come to view the act, especially the clause threatening the possibility of compulsory municipal purchase after twenty-one years, as a key factor in the sudden onset of the industry's malaise.Footnote 18 Contemporary financiers linked to the electrical industry also retrospectively came to regard the British government's reforming zeal in the summer of 1882 as driving “too hard a bargain” in favoring municipalities at the expense of private enterprises.Footnote 19 Of course, many of those involved in the nascent industry and its early financing found it convenient to blame Parliament for the industry's well-publicized difficulties, lest culpability fall upon themselves.
Such convenience was directly challenged by Alexander Siemens in his 1894 presidential address to Britain's Institution of Electrical Engineers. Siemens instead highlighted the stock market boom and subsequent bust that marked the industry's market debut in 1882, emphasizing the “exaggerated expectations” aroused by “[company] promoters,” causing the “confidence of the public [to be] almost destroyed, and only . . . restored by years of patient work,” most of it done overseas (not least by his relatives in Germany).Footnote 20 Nor was Siemens the first to allude to the damage done by the ill-fated flotations of 1882. In November 1882, as electrical share prices collapsed, the Economist noted “that nothing so tends to discredit a system [of electrical lighting] as a string” of sharply depressed share prices.Footnote 21 The prominent electrical engineer J. E. H. Gordon, a student of Clerk Maxwell's at Cambridge, argued that “electric lighting had suffered terribly” from “Stock Exchange operations.”Footnote 22 In 1884, the prominent engineer William Preece wrote, “The progress of electric lighting [in Britain], from a financial point of view, has been disgraced by the commission of every possible crime that commercial immorality can invent, and every foolish act to which insane speculative mania could lay itself open; but from a practical point of view it has been steady and sure.”Footnote 23 Despite these contrary views, most historians have blamed the 1882 act for stifling the British electrical industry's early development.Footnote 24 Ranald Michie has more recently argued, as if it were self-evident, that only inept regulation stood in the way of British entrepreneurs fully participating in the global electrical industry.Footnote 25
However, there is little concrete evidence in the early 1880s of systematic regulatory obstruction and even less of rational concern with the twenty-one-year municipal-purchase clause; when municipalities bought private electric companies, they generally paid handsomely to ensure continuity of service.Footnote 26 (See Table 1 in the online appendix.) This, however, is not to claim that British regulation of early electrification was actually helpful. It was generally unimaginative and unconstructively bureaucratic, requiring companies to engage in often fraught negotiations with both the technologically semiliterate BoT and technologically uninformed, risk-averse local authorities.Footnote 27 It cautiously granted official approval for lighting systems on the basis of the time-consuming, but not unreasonable, demonstration of effective lighting installations and, for applicant companies, the posting of performance bonds to ensure that agreed-on performance standards were met.Footnote 28 Nevertheless, regulations essentially demanding evidence of electrical competence were not insurmountable barriers. It is true that after 1887, with the advent of alternating-current (AC) systems requiring wide-area distribution to realize economies of scale, the early practice of prescribing electricity supply within narrow administrative boundaries became actively obstructive.Footnote 29 But in 1882 supply was overwhelmingly direct current (DC) and service areas small.
Moreover, the evidence for early, ill-judged regulatory obstruction is sufficiently weak to have persuaded a minority of historians that the cost effectiveness of entrenched gas-light providers better explains Britain's retarded electrification.Footnote 30 Studies show that prices of electricity for street lighting in Britain were markedly higher than those charged for gas, leading some to conclude that the demand for electric lighting in 1882 was more limited in Britain than in places where gas was less competitive.Footnote 31 Proponents of such arguments, however, seriously misunderstand the nature of the early demand for electric lighting. The drawbacks of gas illumination in 1882 were numerous: cumbersome lighting-up; excessive heat and fire hazard of open flames; dangers of gas leaks; unsteady, flickering light; dimness; color distortion; soot; and pollution of rooms occasioned by the incomplete combustion of coal-based “town gas.”Footnote 32 Hence, provided it was reliable, electric lighting was a superior illuminant, able to command a premium price among affluent consumers. Edison and his more astute emulators realized that the early demand for the “light of luxury” was concentrated, as gas had once been, in wealthy districts, where its numerous advantages dominated any cost advantage gas lighting might have offered.Footnote 33 Thus, as with luxury goods generally, electric lighting, was first acquired by well-heeled consumers and the shops serving them.
Moreover, affluent consumers often acquired their electricity in its most expensive form: a dedicated generator serving either a single user (e.g., J. P. Morgan's Manhattan townhouse; Sir William Armstrong's Northumberland mansion) or a small group of users (e.g., an exclusive block of apartments, clubs, and restaurants in Berlin).Footnote 34 The more capable electrical pioneers (Edison, Swan, and Siemens) also did a flourishing niche business installing lighting on private yachts, ocean liners, and naval vessels.Footnote 35 Since the low-voltage lighting systems of the early 1880s (mainly DC, following Edison's practice), could plausibly serve an area no greater than a square mile, central stations, seeking to serve hundreds of customers rather than individuals or only a handful, were necessarily sited in affluent areas.Footnote 36 Hence, for astute pioneering electricity-supply companies, public lighting contracts were essentially a marketing tool to attract nearby affluent consumers. Thus, studies such as Byatt's showing electricity prices for street lighting in Britain as higher than gas miss the essential point: high prices could be commanded by residential and commercial lighting, not public streets.Footnote 37
The well-documented experience of Edison's pioneering Pearl Street station, inaugurated with Edison's characteristic fanfare in J. P. Morgan's Wall Street office on September 4, 1882, illustrates the nature of the early public demand for electric lighting in affluent urban areas. Although Edison had initially sought to match the price of gas lighting, he soon found that target irrelevant. After seven months’ operation, his increasingly reliable electricity supply proved so popular that his company no longer accepted the increasing numbers who applied but rationed new electricity connections to heavy users, even as gas prices fell sharply.Footnote 38 Reliability, convenience, and lighting quality were just as important in the affluent area of Berlin where in 1884 Emil Rathenau first offered a limited public supply and was himself on hand to placate patrons of the exclusive Café Bauer if the electricity should fail, while his chief engineer was in the basement tending the dynamo, prompting Thomas Hughes to observe that, “as in New York and London, electric lighting in Berlin [in the early 1880s] was not for the poor.”Footnote 39
Accounts of the early British electrical industry often mention in passing the flood of short-lived companies that marked its debut.Footnote 40 However, unlike Preece, Siemens, Gordon, and other contemporaries, these accounts ignore stock market turmoil, instead attributing the high failure rate of these early companies to the consequences of ill-drafted regulation or gas competition without evidence beyond the post hoc, ergo propter hoc variety.Footnote 41 Byatt, more inclined to view gas-light competition as the main obstacle and claims of perverse regulation a red herring, merely noted, without elaboration, that the electrical “mania” of 1882 was “particularly unfortunate” for electrical-equipment manufacturers.Footnote 42 However, as we show below, a close examination of the 1882 stock market performance of the leading British electrical pioneers reveals that the abrupt fall in electrical share prices had nothing to do with regulation or fear of gas competition but rather was determined entirely by managerial greed and incompetence playing out on the stock exchange.
Data: The British Electrical Companies of 1882
While electrical pioneers elsewhere had recourse only to traditional funding sources (friends, business associates, personal resources) or, in favored circumstances, private access to financiers (Edison, Rathenau), Britain's capital markets, unmatched in terms of accessibility, size, depth, and liquidity, enabled an immediate appeal for public funds through stock exchanges.Footnote 43 We use the data generated by Britain's unrivaled equity markets to assess in detail the funds committed to the early electrical industry and the returns these funds generated. Table 1 lists all the electrical companies that raised cash by share offerings to the general public in 1882.Footnote 44 The data used in the construction of Table 1 and its supporting online appendices are drawn from two sources widely used by market participants at the time. The first, Burdett's Official Intelligence (after 1898, The Stock Exchange Official Intelligence), appeared annually, providing authoritative information on the amount of money companies raised, how it was raised (by the issue of shares, debentures, or other securities), when it was raised, and what money was paid to holders of their securities (including liquidation payments).Footnote 45 As a service to its readership of finance professionals, Burdett's offered broad coverage, including companies that were traded primarily on provincial exchanges or perhaps not even publicly traded at all (like Siemens Brothers). Our second source, The Investor's Monthly Manual (IMM), was published by the Economist newspaper from October 1864 until June 1930. We obtain most of our price data from the IMM, the most widely followed contemporary source of such data before 1914.Footnote 46 By 1882 the IMM had abandoned its early ambition of reporting the prices of all publicly traded companies and reported quotations only for those shares traded, in the editor's judgment, in sufficient volume, a practice that meant the prices of most of Britain's early electrical firms were reported infrequently, especially after 1882. However, the prices of the few shares traded very heavily were reported daily in the Times of London newspaper.
Financial Performance of the Main Groupings of British Electrical Companies Active in 1882
Source: Table by authors.
Notes: A more comprehensive version of this table can be found in the online appendix (Table 2).
a. For details, see William P. Kennedy and P. J. R. Delargy, “Notes on Early British Electrification: The 1880s,” table 2A (discussion paper, Department of Economics, University of Essex, Colchester, U.K., 2020), https://repository.essex.ac.uk/27552/.
b. For details, see Kennedy and Delargy, “Notes on Early British Electrification,” table 2B, https://repository.essex.ac.uk/27552/.
c. The Battery Grouping consisted of three companies: Fauré Electric Accumulator Co., which raised £99,400 cash and paid nil to shareholders: Electrical Power Storage Co. (EPS), which was a patent-pooling operation that raised no cash publicly and eventually paid £23,400 to shareholders; and Indian & Oriental Electrical Storage & Works Co. (I&O), which raised £67,500 and paid nil to shareholders.
d. For details, see Kennedy and Delargy, “Notes on Early British Electrification,” table 2C, https://repository.essex.ac.uk/27552/.
Table 1 lists the cumulated funds obtained before 1914 by those companies (thirty-nine in all) that raised public money in 1882. Table 1 encompasses virtually all the prominent pioneers of electric lighting—Charles Brush, Thomas Edison, Camille Fauré, Paul Jablochkoff, Hiram Maxim, Joseph Swan, and Edward Weston—drawn from around the world by the lure of Britain's wealth and market opportunities, its unequaled global commercial connections, and its myriad funding possibilities.Footnote 47 Rathenau was the only major electrical pioneer never to raise money in Britain. The companies are organized in the table into eight technological groupings, the first seven shown in descending order of the cash raised over their lifetimes by means of the issue of ordinary shares (column 1); the cash raised in 1882 alone is shown in parentheses.Footnote 48 The eighth grouping is a collection of twelve companies, each of which raised relatively small amounts, none ever achieving success. Of Table 1's thirty-nine companies, twenty-eight were liquidated (most before 1885), nine disappeared through merger or municipal purchase, and two were still (barely) operating in 1914. The launch of Britain's electrical industry in 1882 produced no firm of lasting significance.
Table 1 reveals that the thirty-nine companies raised some £2,157,000 in cash through share issue in 1882. The nominal value of shares issued for noncash assets (£2,529,066) was marginally greater than those issued for cash. Just under half of the cash raised (£967,000) went to engineering firms developing and manufacturing electrical equipment of any sort (including lamps, wiring, and cables for non-telegraphic use), while the rest of the cash raised (£1,190,000) went to firms intending to generate and supply electricity to end users. While the £2,157,000 cash (virtually all raised before June) ventured on a new technology was an impressive sum for the time, in the broader context of new issues on the London Stock Exchange in the first half of 1882 it was decidedly less so, amounting to only 4.8 percent of all shares issued for cash by English companies (valued at issue prices) in that period, falling to 3.1 percent if foreign issues are included.Footnote 49 Table 2 highlights the critical importance of 1882 in the British electrical industry's development. In most years in the following decade, British electrical investment struggled to reach 25 percent of the cash amount raised by share issue in 1882. With equipment manufacture, the main source of technical advance and innovation, Britain's experience was even worse: ordinary share issue for cash rarely exceeded 20 percent of the 1882 level.
Cash Raised through the Issue of Traded Securities by British Electrical Companies, 1880–1892
Source: Table by authors.
Notes:
a £375,000 raised by Siemens Brothers; £34,610 raised by British Electric Light; £108,000 raised by Anglo-American Brush. These companies were then all engaged in some form of electrical engineering.
b £100,000 raised by Electric Light & Power Generator Company (name changed to Maxim-Weston in June 1882); £39,900 by Eastern Electric Light & Power; £10,000 by Dublin Electric Light.
c Calls announced in 1882 are included in the 1882 row, even if the calls were actually paid in 1883.
d £50,000 raised by Siemens Brothers, which was then focused almost entirely on the manufacture of undersea-telegraph cables.
e Details relating to this total are found in William P. Kennedy and P. J. R. Delargy, “Notes on Early British Electrification: The 1880s,” (discussion paper, Department of Economics, University of Essex, Colchester, U.K., 2020), 8–14, https://repository.essex.ac.uk/27552/.
Nevertheless, the £2,157,000 cash raised through public markets remains impressive relative to the cash raised by the major electrical companies in the United States in the early 1880s and even more so when compared with Germany.Footnote 50 As Table 3 shows, Edison Electric Light Company—responsible for the development work for the entire Edison lighting system and holding the all-important lamp patents—had spent nearly $650,000 in cash (£133,500) to September 30, 1886, by which time it was self-financing.Footnote 51 In 1885, the Edison Electric Illuminating Company of New York (the core of the present-day Consolidated Edison of New York) stated that the company had spent $828,800 cash to build and operate (at a loss until 1885) its showcase central station.Footnote 52 Conservatively assuming there was no overlap in the development costs of these two companies (unlikely since the Edison Light Company owned 25 percent of the Illuminating Company), perhaps $1,480,000 (£304,000) of external cash funding was spent to take the two companies from conception in 1878 until the Manhattan supply company reached sustained profitability in 1885. This sum does not include the cash from personal resources spent by Edison and his co-workers, amounting to perhaps a further $300,000 at most, to establish Edison's various manufacturing operations that provided the equipment and lamps his electric utilities used.Footnote 53 The estimated sterling value of Edison's total expenditure (conservatively taken to be $1,800,000) was £370,000, or barely 17.2 percent of the cash raised by the early British electrical industry in 1882 alone and only 31.6 percent of the cash raised between 1880 and 1882 by the Anglo-American Brush Electric Light Corporation (A-AB) and its sixteen concessionaires, the group that had raised the largest amount of money in Britain (£1,171,000, excluding later calls).
Comparison of External Funding of the Electrical Industry in the U.K., U.S., and Germany with Special Reference to Edison's Estimated Funding (Cash amounts called in Sterling £1 = $4.87 = Mk20)
Source: Table by authors.
Notes: For the important distinction between cash subscribed (maximum shareholders’ liability) and cash actually called up, see text.
a Amounts rounded.
b Because of uncertainty regarding the number of shares issued to vendors fully paid, the total of funds subscribed for cash by A-AB's concessionaires may be overestimated by as much as £35,000.
c Includes Hammond Electric Light and Power Supply Co.
d For details, see William P. Kennedy and P. J. R. Delargy, “Notes on Early British Electrification: The 1880s,” (discussion paper, Department of Economics, University of Essex, Colchester, U.K., 2020), https://repository.essex.ac.uk/27552/.
e Includes amounts called in 1882 even if collected in 1883.
f Internally generated funds are not included in the estimated totals.
g W. Bernard Carlson, Innovation as a Social Process: Elihu Thomson and the Rise of General Electric, 1870–1900 (New York, 1991), 93, 97, 114, 132. 142, 182, 191, 196.
h Harold C. Passer, The Electrical Manufacturers, 1875–1900: A Study in Competition, Entrepreneurship, Technical Change, and Economic Growth (Cambridge, MA, 1953), 136. The total for Westinghouse includes the amount generated by the creation of Westinghouse Electric in 1886.
i Thomas P. Hughes, Networks of Power: Electrification in Western Society, 1880–1930 (Baltimore, 1983), 39–45.
j Hughes, Networks of Power, 69–70.
The early funds raised externally by the Thomson-Houston Electric Company (which merged with Edison General Electric to form General Electric in 1892) were much less, although the company sustained its growth momentum by frequent infusions of new money, privately arranged among a growing group of investors impressed by the profitability and prospects of the company.Footnote 54 George Westinghouse's expenditures on electricity before 1886 (buying lighting-system patents and funding development work) amounted to perhaps $65,000 (£33,881), funded from his own companies (Union Switch & Signal and the Westinghouse Air Brake Company). In 1886, to fund more ambitious development of AC systems, Westinghouse established Westinghouse Electric, issuing 10,495 shares ($50 nominal) for cash, raising a maximum of $524,750 (£107,752).Footnote 55 The total cash raised through the stock exchange by all British electrical companies by 1882 was nearly four times (393 percent) the cash raised privately by Edison, Westinghouse, and Thomson-Houston combined before 1888 (see Table 3). Whatever difficulties British electrification faced, a lack of cash was not one of them.
Market Evaluations, 1882
Britain's early appeal to open equity markets affords a unique opportunity to chart the progress of British electrical companies, linking decisive movements in valuations to events in the crucial year of 1882. Of the thirty-nine electrical companies listed in Table 1 and supporting online appendices, the continuous run of daily prices needed for this purpose are available for only three of them: A-AB, Hammond Electric Light & Power Supply (HELPS), and Swan United.Footnote 56 The share prices of the remaining thirty-six companies are available only sporadically from diverse sources; nevertheless, these fragmentary data clearly show they never outperformed the three large ones. Of these thirty-six companies, only two small supply companies established by Robert Hammond (1850–1915) early in 1882 on England's south coast were profitable over their life spans, reaching their maximum values (both under £40,000) only in the late 1890s.
A-AB, established in December 1880, was primarily a manufacturer of arc-lighting equipment, having purchased the British, Imperial, and European rights to the system of Charles Brush (1849–1929), who was then enjoying signal success in his native United States, securing by 1880 some 80 percent of its burgeoning arc-lighting market.Footnote 57 In July 1881, A-AB bought, in careless haste (neglecting to secure exclusivity), rights to St. George Lane Fox (1856–1932) incandescent lamps (suitable, unlike arc lights, for illuminating individual rooms), thereby positioning itself to address both segments of the nascent electrical lighting market. It was the first company to tackle Britain's entire electrical lighting market with significant resources and began to reap first-mover advantages stemming from a growing number of successful installations, initially overshadowing all competitors.
Central to this achievement was Robert Hammond, a man with only a grammar-school education but an inventive mind who was engaged in the iron industry and enthralled by early displays of arc lighting.Footnote 58 Like Edison, he also possessed a flair for publicity. In 1881 Hammond imaginatively installed Brush arc lights in several northern iron foundries, achieving public acclaim. With skillful publicity, he also advertised electric lighting in his private residence in London's Highgate, using a Brush dynamo. Hammond's notable early successes in establishing a range of well-regarded lighting schemes, both incandescent and arc, made him a highly effective advocate of electrification in general and of A-AB's market-leading equipment in particular. To conduct this business on a larger, more ambitious scale, in January 1882 he established the company HELPS, issuing shares with a nominal value of £90,000, of which £44,950 cash was immediately called up. He also purchased, for £27,500, concessions from A-AB for exclusive rights to all its technologies in regions where he already had successful installations.Footnote 59
Within weeks, Hammond's mushrooming business, bolstered by the popular fascination with electric lighting, prompted others to seek a Brush concession, a development that A-AB warmly encouraged since it greatly expanded the company's marketing profile, promised extensive future demand for its equipment, and provided much cash. The prospectuses of the Brush concessionaires that followed Hammond's all noted the conspicuously rapidly rising share prices of A-AB and HELPS, which in the spring of 1882 were a constant feature of the financial press. These prospectuses, published prominently in the Times and detailing long lists of electrical installations, formed a powerful marketing tool for share issue. Within five months, a further fifteen Brush concessions—eleven domestic (of which four were sub-concessions of Hammond's original concession) and four foreign—were created. In all, the concessionaires paid to A-AB £285,750 and to HELPS £85,000 in cash—totaling 36.7 percent of the £982,000 cash the concessionaires had raised in 1882 from their shareholders—as well as fully paid shares with a nominal value of £286,600.Footnote 60 In cash terms alone, sales of concessions and sub-concessions were many times more lucrative than selling and installing lighting sets in 1881—eleven times more so for A-AB and eighteen times for HELPS, according to their audited accounts; the sale of concessions and sub-concessions were a key reason for the elevated valuations of A-AB and HELPS in 1882.Footnote 61 Thus, the approximately £85,000 that HELPS had raised from its sale of sub-concessions (as opposed to earnings in 1882 of £4,700 from its ostensible business) set the model for all Brush concessionaires. The third large electrical company of 1882 was Swan United, a manufacturer of a well-tested and patented incandescent lamp, with others providing the myriad ancillary equipment needed for electric lighting.Footnote 62
The market experiences (per partially paid share) of these three prominent companies in 1882 are shown in Figure 1, benchmarked against an equally weighted market index of British companies consisting of the three largest railways, the three largest banks, and the two largest gas companies operating in 1882.Footnote 63 These eight large companies, each possessing a comprehensive run of daily prices, comprised 30.5 percent of the market capitalization of the 125 largest British quoted companies of the period, constituting a useful proxy for the wider stock market.Footnote 64 Using the run of daily closing prices posted in the Times for the three electric and the eight benchmark companies, Figure 1 plots the course of the 1882 electrical market. As Figure 1 illustrates, the share prices of A-AB and HELPS moved largely in lockstep (with correlation coefficient 0.927), the result of the close business relationship between the two companies. The equity market benchmark rose gently, by 4.8 percent, over the course of 1882, with the shares of the two gas companies notably unresponsive to the dramatic developments in the electricity sector.
Daily share prices (£) of selected British electrical companies, 1881–1882. Notes:
1. Initial called amounts replace initial price per share where this is not available.
2. A-A Brush shares were issued at £4 paid on £10 shares. Three additional calls were announced December 1, 1882, to be paid at monthly intervals beginning January 1, 1883.
3. A call of £0.50p was made on Swan United partly-paid shares in December 1882 to be paid January 9, 1883.
4. HELPS shares were issued £2.50p called on £5.00p shares. Swan United shares were issued at £2.00p called on £5.00p shares.
5. Prices at December 30, 1882: A-A Brush £6.31p (broken line); HELPS £3.00p (solid line); Swan United Limited £1.88p (dashed line); Market index 1.048 (alternating dash-dot line). (Sources: Times [London].)
Figure 1 shows the sharp run-up in Brush-Hammond share prices between November 1881 and June 1882. A-AB's first price quotation, in November 1881, before any sales of concessions, was already £7.88, or 197 percent of its called par of £4; by June 1882 the increase stood at 390 percent, aided by the company's first dividend, of 12.5 percent of par, paid in April.Footnote 65 HELPS's partially paid shares, first quoted in April, opened at 810 percent of par (£2.50). However, by end-December 1882, both A-AB and HELPS had lost more than 80 percent of their June peak values. HELPS entered liquidation in 1885 (see Figure 2 in the online appendix). Swan United, making its market debut just as the Brush-Hammond pair approached their peak valuations, never experienced their wild swings, ending the year only 16.7 percent below its market peak. The obvious questions are why the shares of the two most prominent electrical companies, together with their fifteen associated companies, should have collapsed so quickly, and whether, as conventional wisdom maintains, suddenly discovered fears of regulatory risk and competition from gas are adequate explanations.
Driven by robust sales of lighting equipment and concessions, the share prices of A-AB and HELPS were unaffected by the 1882 Electric Lighting Act's advance through Parliament: their prices were rising sharply when the period of secure private tenure was initially set, contentiously, at only seven years. As the lighting act continued its way through Parliament, the period of secure private tenure was progressively extended, first to fifteen and then to twenty-one years (on June 1 and August 8, 1882, respectively). Presumably, these extensions were advantageous for would-be private electricity suppliers. However, in mid-May, shares of A-AB and HELPS were struck by short sellers. These widely reported bear attacks had been provoked by the shares’ conspicuously rapid rise, dangerously dependent on the sale of concessions and subconcessions, combined with revelations that some A-AB insiders (including, it later emerged, the company's chairman) were selling their shares.Footnote 66 Short sellers succeeded in pushing the price of A-AB's partially paid shares down from a high of £31.00 on Saturday, May 13, to a low of £20.00 on Wednesday, June 7, before short covering, supported by the investor-friendly second reading of the act on June 1, pushed the price of the partially paid shares back up to £29.75 on Friday, June 16.Footnote 67 Although there was no evidence of insider selling for HELPS (only the partially paid shares were traded in 1882), its share price tracked that of A-AB closely. The extensive press coverage during this volatile period focused not on regulatory fears or gas competition but on technological uncertainty—that is, which of the many systems striving for market preference might ultimately prove successful—and whether the exuberance of Brush concessionaires would be vindicated.Footnote 68
However, the lack of market impact of the act's passage through Parliament stands in sharp contrast to the requests made by A-AB's directors at special meetings of their shareholders on July 18 and August 2, 1882. At the July meeting, A-AB's directors sought shareholders’ permission to pay an extraordinary interim dividend of 100 percent cash (worth the par value of £10 for each fully paid share and £4 for each partially paid share). This proposed dividend was controversial among many shareholders for two reasons. First, a vocal group of A-AB's shareholders questioned the wisdom of paying such a large cash dividend when a growing number of widely reported user complaints condemned the company's underpowered dynamo and its failure-prone Lane-Fox incandescent lamps.Footnote 69 Second, the holders of the partially paid shares were disgruntled, given that there were twice as many partially paid shares extant as fully paid ones, yet the holders of the £10 fully paid shares (unburdened by any contingent liability) would receive the bulk of the proposed cash payment (£130,000 versus £108,000), while the £4 partially paid shares still carried a contingent liability of £6. Despite these reservations, the proposed 100 percent dividend was approved at the August meeting, with directors (armed with many proxy votes, just in case) alluding reassuringly to the brisk business the company was doing and the presumed value of the fully-paid concessionaire shares held by A-AB.Footnote 70
Market evaluation immediately sided with the critics. Between the proposal of the 100 percent dividend (July 18) and the day the shares went ex-dividend (August 17), the partially paid shares lost 53 percent (£12.75) of their pre-announcement value (£24), while the fully paid shares lost 49 percent (£24, from £49). A-AB's share prices never regained the levels held just before the proposal of the extraordinary disbursement. While HELPS did not have the cash to propose an extraordinary dividend, its close association with A-AB meant its shares also fell, by 37 percent over the same period. The 100 percent dividend marked a clear, abrupt change in the market perceptions of A-AB and its concessionaires.
The reason is straightforward: A-AB's 100 percent interim dividend dissipated the resources needed to respond to intensifying competition, exemplified not least by Edison's characteristically well-publicized entry into the British lighting market. In this situation, the large payment was highly disadvantageous for the holders of A-AB's partially paid shares, exposed to calls when there was no foreseeable prospect of further concessionary sales to fund development (rights to the most promising regions of Britain and abroad having already been sold). Worse was to come. Despite the claims directors made to gain approval for the extraordinary dividend, their business was not brisk but slowing rapidly in the summer of 1882, causing increasingly obsolete equipment manufactured in a newly enlarged factory to pile up unsold. On December 1, hardly three months after the 100 percent dividend payment, the directors made a devastatingly unexpected call of £3 per share (totaling £81,000) while also revealing a hitherto undisclosed cash shortfall covered by bank borrowing. In short, the chairman, Sir Henry Tyler (1827–1908; MP, former member of the Royal Engineers without electrical experience and member of many company boards, mostly railroads), and his closest board allies had gutted the company.Footnote 71
The market responded accordingly. Just before the unexpected December call, the closing price of the partially paid shares was £10.19, down by 9.4 percent from A-AB's closing price on the ex-dividend date of August 17 (and down 57.7 percent from its closing price of £24 immediately before the ill-fated dividend proposal). In the wake of the surprise December call, A-AB's partly-paid shares went into freefall, bottoming out only thirteen months later, in January 1884, at £1, despite the call on shareholders of a further £1 per share (the fully paid fell to £3.50).
The response of now-enraged Brush concessionaires was even more pronounced. As Tables 1 and 3 show, the concessionaires had raised over five times (520 percent) the cash A-AB had done from 1880 to 1882 (between them 55 percent of the total cash raised in 1882 by all British electrical companies). The concessionaires also had contingent liabilities of £762,000 in the form of the uncalled portion of their share subscriptions. They were also the main channel through which A-AB marketed its own equipment. But with the payment of A-AB's 100 percent dividend, the concessionaires immediately concluded, correctly, that A-AB would not deliver the improved equipment and engineering support they had expected (and needed). They therefore took immediate steps, either by quickly writing down the nominal value of their shares or by forcing voluntary liquidation, or both in sequence, to ensure that they would never pay the uncalled portions of their otherwise legally binding share subscriptions. Of the £762,000, only £168,000 was ever called up, leaving £594,000 untouched. By comparison, the £594,000 that Brush concessionaires left uncalled amounted to 161 percent of the external funds Edison had raised through 1886.
Given the adverse response to the 100 percent dividend, why was it proposed? Perhaps Tyler and his fellow directors were genuinely surprised by the market's hostile reaction.Footnote 72 At the same time, the directors were undoubtedly influenced by the fees and bonus (equaling £21,421, or more than twenty-two times their customary fees of £941) which the company's articles of association (linking bonuses to dividends) had entitled them to.Footnote 73 The directors probably had some inkling of the costly development work that lay ahead and valued immediate gain over the long-term but uncertain opportunity. Perhaps they could not resist greedily exploiting an error that over-eager concessionaires had made when paying for rights with so much cash rather than shares whose value derived entirely from the profitability of the underlying concessions. Perhaps they reckoned that if more cash were needed, it could be obtained by making calls on the partly-paid shares. Perhaps they believed shareholders’ reservations would be overcome by the extravagant dividend itself.Footnote 74 Whatever the directors’ thinking, they had grossly, and self-servingly, exaggerated the company's cash reserves.Footnote 75 In the face of shareholders’ understandable wrath, Sir Henry and his board allies soon resigned their seats.Footnote 76
Directors of only four concessions—HELPS (despite Hammond's angry denunciation of A-AB's “suicidal” 100 percent dividend and its multiple breaches of contract), HELPS's two small subconcessions on England's south coast, and Australasian Brush—still had enough confidence after A-AB's dividend payment to call up all subscribed cash.Footnote 77 The management of the other Brush concessions made no attempt to enforce calls, most likely fearing shareholder refusal and litigation on increasingly numerous grounds, as the case of London Metropolitan Brush, by far the largest of all Brush concessionaires, illustrated vividly.Footnote 78 Metropolitan's shareholders were infuriated to discover, belatedly, that of the £300,000 called from them, £170,000 had been paid for patent rights alone (leaving nothing for the expected engineering support) and a further £65,000 in flotation costs, a sum eventually revealed to have been inflated by questionable, if not outright fraudulent, practices by the company's solicitor (which apparently gained him and his accomplices £25,000), leaving only £65,000 from the initial cash call for the company's electrification effort.Footnote 79 Immediately after their fraught annual general meeting in December 1883, at which the full extent of the company's shockingly diminished resources was disclosed, shareholders initiated liquidation, thereby aggressively forestalling any attempt by directors to call up the remaining £200,000 subscribed. Rather than advance electrification in London, Metropolitan Brush had made electrification in the capital synonymous with financial chicanery. In all, thirteen of the sixteen Brush concessions and subconcessions (three of which were foreign, unhindered by threatening regulation or an entrenched gas-light industry) had entered voluntary liquidation by 1885.
The Aftermath of the Crash
In the wake of the 1882 crash, the British electrical industry moved abruptly from a situation of abundant resources and market receptiveness to a tightly constrained one overshadowed by scorn and hostility.Footnote 80 Investors would not buy more shares and banks would not lend. As Table 2 shows, investment fell sharply after 1882. Hence, any advance the industry could make had to be achieved with the cash remaining after A-AB's massive dividend and its concessionaires’ rush to liquidation. It was therefore unfortunate that Hammond had raised so little cash in early 1882, only £175,000 compared with the £545,240 raised by A-AB.Footnote 81 Hammond compounded these difficulties by spending 1883 and 1884 fruitlessly attempting to manufacture incandescent lamps to replace the inadequate Lane-Fox ones while failing to curb the perfectionism of Sebastian de Ferranti, who delivered his generators for isolated stations (serving only a single user) late and over budget.Footnote 82 Newfound market skepticism, stemming from A-AB's badly tarnished reputation, meant that the marketing demonstrations needed by all electrical companies (but especially A-AB and its concessionaires) to secure sales for large-scale central stations had to be longer and meet more demanding specifications, yet with less chance of success.Footnote 83 And as private investors became skittish, local authorities became obstructive, determined to withhold approval for any remotely problematic electrical scheme.Footnote 84 As the chairman of Swan United explained to his shareholders in 1884, the low price of their shares despite good lamp sales “was probably owing to the bad odour into which nearly all electric light companies had fallen.”Footnote 85 All this resulted in weak cash flows and accumulating debts for HELPS. By June 1885, its lack of cash compelled Hammond to begin an orderly liquidation.Footnote 86 HELPS was the last Brush concessionaire to liquidate and, unlike the others, did so only after it had established three viable electricity-supply companies before exhausting its resources. Fortunately, the liquidation of HELPS did not end Hammond's electrical career. In 1888 he became manager of the House-to-House Electric Light Supply Company, serving the Brompton-Kensington district of London, at a salary of £2,000 per year (quite generous by the standards of the time) plus fully paid founder's shares ultimately worth some £100,000.Footnote 87 In 1893, he was elected member of the Institution of Electrical Engineers, becoming influential in developing the institution's educational and professional functions and, in 1902, its honorary treasurer.Footnote 88
No other company founded in 1882 advanced British electrification. The merger in 1884 of the Swan and Edison companies, popularly dubbed “Ediswan,” confined itself to lamp manufacture alone and did not pursue electrification on a broad front. Upon the lapse of its key patents in 1893, combined with the indifference of Swan and (especially) Edison (the two men never met, much less actively collaborated), the company entered into a gradual but sustained decline, leaving its ordinary shares virtually worthless by 1914. Due to the effectiveness of its equipment and operating procedures, the Manchester & District Edison Electric Light Company (bereft of Edison's personal attention) survived early losses eventually to become modestly profitable but did little to advance British electrification other than to survive.
Maxim-Weston Electric suffered from the same “bad odour” as Swan United.Footnote 89 Moreover, Maxim-Weston Electric's directorate was egregiously incompetent, unable to entice Maxim himself to manage it after he had seen the shambles of its operations; as Byatt noted, British businessmen were much better at identifying promising technologies than cultivating them.Footnote 90 Although its liquidation did not occur until 1889, Maxim-Weston had suffered a failed rights issue in May 1883 that left it short of cash just as Brush concessionaires were leaving the market en masse.Footnote 91 Jablochkoff, who had once possessed a market-leading arc-lighting technology, failed to keep pace with Brush and lacked the means to remain competitive with even a diminished A-AB.Footnote 92 The battery technology of the day was barely viable, wracked by managerial turmoil (Fauré's managing director was under arrest), and unable to sustain more than a niche presence anywhere.Footnote 93 The same set of problems beleaguered the lesser companies that floated in 1882.Footnote 94 In some cases the issue was flawed or obsolete technology, in others weak management, in all cases, heightened market skepticism to electrical ventures stemming from A-AB's “bad odour.”
Chance misfortune also intruded to magnify the impact of the 1882 debacle. The sudden, unexpected death of Sir William Siemens in November 1883, at the early age of sixty, deprived Britain of world-class electrical talent and wealth at a critical time in the industry's development. Hanoverian-born Sir William shared with his elder brother Werner both an outstanding inventive talent and a keen interest in the evolving applications of electricity.Footnote 95 Technologically informed and creative (unlike the management of other British electrical companies), personally wealthy, and highly respected, he led a large, financially strong company untainted by “company-mongering and electrical-lighting finance.”Footnote 96 He was in an excellent position to monitor electrical developments worldwide, not least those in Germany where his brother was then joining with Emil Rathenau to exploit and extend Edison's patents. He was readily able to draw upon German technological talent. Moreover, at the time of his death he had just completed an important advance in electric-traction technology at Portrush, Ireland. Electric traction was to prove the gateway for advances more generally in electrical power applications, which, unlike lighting, was where future electrical growth lay. While the Siemens brothers had shown no great interest in lighting (Werner was initially highly skeptical), they both had a strong interest in transport applications, Werner demonstrating a rudimentary tram system in Berlin as early as 1879.Footnote 97 But upon Sir William's death, this promising move toward the future of electrification abruptly ended. Control of the British business passed to the older (by nearly seven years) Werner in Berlin.Footnote 98 Werner, increasingly cautious as he aged, decreed that London, shorn of his brother's guidance, should concentrate on its highly profitable undersea-telegraph cables business, abandoning electrical engineering projects to Berlin.Footnote 99 Thus the promising work done by Siemens Brothers on traction, lighting, and related electrical projects ceased with Sir William's death. It would not be until well after Werner's death in 1892 that Berlin began to respond to the growing backwardness of British electrical engineering practice and Siemens Brothers once again actively engaged in British electrical engineering activities, although now directed (not very successfully) from Berlin.Footnote 100
Nor, curiously, did Britain's nascent electrical industry benefit from the wealth and expertise accumulated in its large industrial base. Sir William Mather, of the prosperous textile equipment manufacturer Mather & Platt, perhaps came closest in Britain to crossing over from mechanical to electrical engineering, as Westinghouse in America and Rathenau in Germany had done. In 1882 Mather had bought the British rights to Edison's dynamo and then, with John Hopkinson, proceeded to improve it substantially. Moving into electric traction in 1888, he provided the pioneering electrical equipment for the City & South London Railway, the first part of London's Underground network to be electrified. However, the motors Mather devised for the project were unable to haul the number of carriages needed to make the awkwardly contoured line profitable. It would not be until nearly a decade later that newly available technology, in the form of Frank Sprague's multiple-unit controls, could achieve Mather's objectives.Footnote 101 By the mid-1890s Mather's main interests had returned to textile machinery. When his company went public in 1899, with an initial market capitalization of over £1 million, its electrical department was confined to relatively small-scale factory electrification projects and played no further part in the advancement of British electrical engineering, which was then driven by the subsidiaries of American and German companies.Footnote 102
Thus, what had once been a highly propitious environment for electrical development became a highly daunting one, leaving both Britain's demand for electricity and its capacity to efficiently supply it gravely diminished.Footnote 103
Conclusion
Historians agree that electrification, one of the transformative technologies of the last half of the nineteenth century, proceeded disconcertingly slowly in Britain. There is less agreement as to why this unwelcome development in the birthplace of the Industrial Revolution occurred. Explanations have centered on inept regulation and, to a lesser extent, on the competition offered by a well-entrenched, relatively low-cost gas-light industry. However, these explanations ignore one of the most conspicuous, and unique, features of Britain's early electrification: a short-lived, unparalleled flood of stock exchange money into the electrical industry, resulting in a spectacular boom-and-bust in publicly quoted asset prices, all in the single year of 1882. Such a market debut was uniquely British; no other country then possessed a stock market in which a new industry could attract funds on such a scale. But the promise of this opportunity was not realized. As this article has shown, much of the unmatched flood of money that was so easily raised was promptly, wantonly dissipated, leaving only public recriminations and acrimony in its wake. For more than five years after this very public market debacle, electrical projects and attendant innovation nearly ceased in Britain, while accelerating elsewhere. The promise of electrification required incessant, skilled, expensive experimentation regarding currents, the manipulation of voltages and current frequencies, the control of increasingly complex systems involving myriads of users, motor design, the marriage of electrical with mechanical equipment, and much else, all of which required the discovery and recruitment of technological talent into the industry. But the aftermath of Britain's electrical mania abruptly suppressed experimentation and recruitment. This sudden change of pace cannot be explained by any change in the slow-moving gas-light industry or by the impact of the 1882 Electric Lighting Act. The conspicuous financial losses of the electrical industry in 1882 were triggered by events within the industry itself and were well advanced even before the ramifications of the controversial act could begin to be assessed. It was during this time that Britain's electrical lag emerged, to remain unclosed until well after 1918.
The 1882 debacle did not permanently stop British electrification. Beginning in 1887, significant stock exchange funding for electrification (comprising both electricity supply and equipment manufacture) cautiously resumed, although another twelve years would pass before it would again reach the level of 1882. Stock exchange funding for electrical manufacturers would not reach the level of 1882 until after 1914. Moreover, when stock exchange funding did resume, it was as if Britain had stepped out of an electrical time warp. Just as in 1882, money was overwhelmingly directed to DC lighting schemes in London (Ferranti's ambitious but ill-fated Deptford scheme being the exception), but now little British money flowed to the engineering firms that provided the necessary technology.Footnote 104 Meanwhile, in the United States and Germany, effort had swiftly moved beyond DC lighting in two important dimensions: to power applications, whose growth, beginning in 1888 with large-scale urban-traction schemes, quickly surpassed that of lighting; and to low-cost AC distribution systems, increasingly linked to power applications. Given this pace of innovation, it was hard for British firms, once behind, to catch up. For example, as late as 1897, W. M. Mordey, the chief electrical engineer of Brush Electrical Engineering (the successor to A-AB following a reorganization in 1889 and then still a major British electrical engineering firm), apologized to a professional audience for being unable to speak from personal experience on polyphase AC motors at a time when such motors were a prime focus of factory power applications in the United States and Germany (and eventually in Britain too).Footnote 105
Two factors especially handicapped British efforts to catch up. First, its openness to trade meant that Britain's electrical engineering firms after 1882 were at a pronounced competitive disadvantage, replicating in Britain the challenging experiences of firms in the United States and Germany attempting to compete with the robust oligopolies there (GE and Westinghouse in the United States; AEG and Siemens in Germany) that had emerged by the 1890s based on first-mover advantages. Byatt is surely correct that any attempt to rectify Britain's predicament by trade protection would only have hindered the already slow process of electrification. Such restrictions alone would have done nothing to enhance Britain's technological capacity but would have been—to the extent the protected industries were complacent and lethargic (as they conspicuously proved to be in the 1930s)—egregiously counterproductive.Footnote 106 Second, Britain's academic engineering base was weak. In 1880, when commercial applications of electricity were first appearing, the study of electricity and magnetism was the province of university departments of physics. While Britain, for its size and wealth, had relatively few of these, several that it did have were excellent (notably Cambridge and Glasgow). Britain's weakness lay in the engineering departments that guided scientific understanding into practical applications. Where commercial demands for electrical applications were strong, distinct units of electrical engineering promptly appeared (MIT in the United States, within the physics department, and Technische Hochschule Darmstadt in Germany, as a separate department, both in 1882) while maintaining close links to the underlying science base without which application efforts were severely handicapped.
Germany, Switzerland, Sweden, and the Netherlands, with well-developed systems of technical education, had natural advantages in pursuing electrification.Footnote 107 The United States at the dawn of electrification did not share these advantages, but it did have powerful incentives driven by commercial development to make good this deficit. The strong demand for trained personnel encouraged technically inclined Americans to study in Europe, especially in Germany, confident (justifiably, as it turned out) that they could find rewarding positions when they returned.Footnote 108 That same demand also attracted university-trained (PhD level) Europeans to the United States, such as Carl Steinmetz (chief engineering consultant for GE), Michael Pupin (professor of electrical engineering at Columbia), and Nikola Tesla (instrumental in developing Westinghouse's AC capabilities). In other cases, American universities (notably Columbia and Cornell) successfully filled professorial positions by appointing their most promising undergraduates almost immediately upon graduation. In this way, driven by commercial imperatives, the German (and Swiss) concept of a research university was successfully transplanted to the United States before 1914. Britain awkwardly fell between two stools: unlike Germany, it did not have the academic engineering base to generate a stream of electrical innovations independently, thus forfeiting the endogenous competitive edge needed in an open economy, nor did it have, after 1882, the commercial imperative that sustained American innovation while simultaneously building a capable academic engineering base.
Britain's electrical backwardness was not inevitable. One can easily imagine a counterfactual world where, given Britain's many endowments, the remarkable sums of money raised in 1882, unprecedented by international standards, were used to drive British electrification with vigor and distinction. Sadly, the great bulk of this money was “disgraced by the commission of every possible crime that commercial immorality can invent, and every foolish act to which insane speculative mania could lay itself open,” as William Preece put it, to Britain's lasting detriment.Footnote 109 In this manner, Britain failed to seize the beneficial outcome that its unsurpassed stock market had put within its grasp.
Supplementary Material
The supplementary material for this article can be found at https://doi.org/10.1017/S0007680520000318.
