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“Rich beyond the Dreams of Avarice”: The Guggenheims in Chile

Published online by Cambridge University Press:  13 December 2011

Thomas F. O'Brien
Thomas F. O'Brien
Affiliation:
Thomas F. O'Brien is associate professor of history at the University of Houston.
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Abstract

This article focuses on the roles of business-government relations, technology, financing, entrepreneurship, and management in the evolution of multinational corporations. It describes the Guggenheims' successive involvements in Mexican silver, Chilean copper, and Chilean nitrates and stresses the brothers' strategic use of technical innovation and relations with host governments to accomplish these major changes in the focus of their business. The essay's findings suggest the need for a more sophisticated treatment of business-government relations and for the incorporation of entrepreneurship and organizational structure as dynamic variables in theories of the MNE. It also points to the importance of historical conjunctures that shape technology in understanding the emergence of the MNE.

Type
Articles
Information
Business History Review , Volume 63 , Issue 1: Entrepreneurs in Business History , Spring 1989 , pp. 122 - 159
Copyright
Copyright © The President and Fellows of Harvard College 1989

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References

1 This discussion of theory and history is based largely on Peter Hertner and Geoffrey Jones, “Multinationals: Theory and History,” and Casson, Mark, “General Theories of the Multinational Enterprise: Their Relevance to Business History,” in Multinationals: Theory and History, ed. Hertner, Peter and Jones, Geoffrey (Brookfield, Vt., 1986), 1–18, 42–63.Google Scholar For a concise summary of theories of FDI, see Grosse, Robert, “The Theory of Foreign Direct Investment,” University of South Carolina Essays in International Business 3 (Dec. 1981): 10–27.Google Scholar

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3 Casson, “General Theories,” 53.

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5 The Guggenheims' empire came to include smelters, mines and refineries for lead, silver, copper, nitrates, and tin in the continental United States, Alaska, British Columbia, Mexico, Peru, Chile, the Belgian Congo, and Southeast Asia, as well as diamond and rubber interests in the Congo. By 1923 their far-flung interests had already created a family fortune that was conservatively estimated at $200 million. See Hoyt, Edwin P. Jr, The Guggenheims and the American Dream (New York, 1967), 149–51, 191Google Scholar; and O'Connor, Harvey, The Guggenheims: The Making of an American Dynasty (1937; rpt., New York, 1976), 422.Google Scholar

6 Hoyt, American Dream, 17–37.

7 Ibid., 57.

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15 O'Connor, Guggenheims, 101–17.

16 Hoyt, American Dream, 119–22.

17 Barger and Schurr, Mining, 110, 224.

18 Porphyry ores are igneous rock formations that contain copper sulfate. The copper content of the ores varies from 1 to 2 percent for mines in Chile and Peru, to 0.4 to 0.8 percent in the southwestern United States and northern Mexico; see Mikesell, Raymond F., The World Copper Industry: Structure and Economic Analysis (Baltimore, Md., 1979), 47.Google Scholar

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20 Navin, Metallurgy, 45–47.

21 Hoyt, American Dream, 143–61, 187–97.

22 The Madero family was the only group of Mexican entrepreneurs who attempted to operate a fully integrated mining operation in direct competition with the Guggenheims and other foreign interests. See Hart, Revolutionary Mexico, 142.

23 Reynolds, Clark Winton, “The Development Problems of an Export Economy: The Case of Chile and Copper,” in Mamalakis, Markos and Reynolds, Clark Winton, Essays on the Chilean Economy (Homewood, Ill., 1965), 210–13Google Scholar; Przeworski, Joanne Fox, “The Entrance of North American Capital in the Chilean Copper Industry and the Role of Government, 1904–1916,” Atti del XL Congresso Internazionale degli Americanisti (Rome, 3–10 Sept. 19172), 398Google Scholar; Mamalakis, Markos J., The Growth and Structure of the Chilean Economy from Independence to Allende (New Haven, Conn., 1976), 40–41.Google Scholar

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25 At the time the Guggenheims made their investment, it was estimated that Chuquicamata contained 300 million tons of 2.23 percent copper ore; see O'Connor, Guggenheims, 347.

26 Ibid., 346–50.

27 C. Van H. Engert, charge d'affaires to secretary of state, Santiago, 27 Oct. 1926, RG 84; Przeworski, “Chilean Copper,” 397–401; Moran, Theodore H., Multinational Corporations and the Politics of Dependence: Copper in Chile (Princeton, N.J., 1974), 22–23Google Scholar; Reynolds, “Chile and Copper,” 221; Herfindahl, Orris C., Copper Costs and Prices: 1870–1957 (Baltimore, Md., 1960), 174Google Scholar; Bain, Harry F. and Read, Thomas T., Ores and Industry in South America (New York, 1934), 220.Google Scholar

28 On British investment in Chile, see Blakemore, Harold, British Nitrates and Chilean Politics, 1886–1896: Balmaceda and North (London, 1974)Google Scholar; Mayo, John, British Merchants and Chilean Development, 1851–1886 (Boulder, Colo., 1987)Google Scholar; Couyoumdjian, Juan Ricardo, Chiley Gran Bretania durante la Primem Guerra Mundial y la postguerra, 1914–1921 (Santiago, 1986)Google Scholar; Monteón, Michael, Chile in the Nitrate Era: The Evolution of Economic Dependence, 1880–1930 (Madison, Wis., 1982).Google Scholar

29 Chile, , Hacienda, Ministerio de, Salitrera, Sección, Antecedentes sobre la industria salitrera (Santiago, 1925), 9, 21Google Scholar; Engert to secretary of state, 13 Oct. 1926, RG 84; Couyoumdjian, Ricardo, “El mercado del salitre durante la Primera Guerra Mundial y la postguerra, 1914–1921, notas para su estudio,” Historia 12 (1974): 47–49.Google Scholar

30 The nitrate content of caliche had fallen from 42 percent in 1890 to 20 percent in 1910; see Ministerio de Hacienda, Industria salitrera, 8.

31 U.S. Vice-Consul Richard P. Butrick, “Chilean Nitrate Producers Association, a Trust Inimical to American Interests,” Iquique, 9 Dec. 1922, RG 84; U.S. Ambassador William Miller Collier to secretary of state, Santiago, 16 Feb. 1925, RG 84; Ministerio de Hacienda, Industria salitrera, 57.

32 U.S. Consul Homer Brett, “Nitrate Industry of Tarapaca Province, Chile,” Iquique, 11 Jan. 1922, RG 84.

33 Brown, R. J., “Nitrate Crises, Combinations, and the Chilean Government in the Nitrate Age,” Hispanic American Historical Review 43 (May 1963): 233–43.CrossRefGoogle Scholar That twelve of the industry's seventy-three companies accounted for 55 percent of its productive capacity in 1925 is indicative of the degree of concentration in the industry. See U.S. Consul General C. T. Deichman to U.S. military attaché Col. James Hanson, Valparaiso, 23 April 1925, RG84.

34 Hopper, “The Labor Perspective in Chile,” Antofagasta, 3 March 1926, RG 84; U.S. Consul McMillan, Stewart E., “A Brief Review for 1924 of the Nitrate Industry in the Antofagasta Consular District,” Antofagasta, 27–28 Jan. 1925, RG 84Google Scholar; Stickell, Arthur Lawrence, “Migration and Mining: Labor in Northern Chile in the Nitrate Era, 1880–1930” (Ph.D. diss., Indiana University, 1979), 60.Google Scholar

35 The principal use for sodium nitrate in peacetime was as a fertilizer. Eighty percent of Europe's imports before the war were for that purpose, with only 20 percent going to explosives. The war dramatically increased demands in the explosives industry. In the United States, where 40 percent of prewar nitrate imports went to explosives, the figure jumped to 62 percent with the outbreak of the conflict; see “Latin American Bulletin #1,” Records of the War Trade Board, Washington National Records Center, Suitland, Md., Record Group 182.

36 Stickell, “Migration and Mining,” 310.

37 Bain, H. Foster and Muliken, H. S., Nitrofen Survey Part I, the Cost of Chilean Nitrate, Bureau of Foreign and Domestic Commerce, Trade Information Bulletin No. 170 (Washington, D.C., 1923), 20Google Scholar; Stickell, “Migration and Mining,” 340; Semper, E. and Michels, E., La industria del salitre en Chile, trans. and aug. Gandarillas, Javier and Salas, Orlando Ghigliotto (Santiago, 1908), 69.Google Scholar

38 Bain and Muliken, Nitrogen Survey, 12–14; U.S. Consul Makinson, George A., “The Cost of Producing Nitrate in Chile,” Valparaiso, 8 Oct. 1923, RG 84.Google Scholar

39 Hopper, “Labor Perspective.”

40 Glade, William P., The Latin American Economies: A Study of Their Institutional Evolution (New York, 1969), 364.Google Scholar

41 Stocking, George W. and Watkins, Myron W., Cartels in Action: Case Studies in International Business Diplomacy (New York, 1946), 125–31Google Scholar; Ministerio de Hacienda, Industria salitrera, 65.

42 On the Guggenheim-Morgan nitrate syndicate, see O'Connor, Guggenheims, 411–13, 417–18; on the history of the Gibbs firm see Maude, Wilfred, Antony Gibbs & Sons Ltd.: Merchants and Bankers, 1808–1958 (London, 1958)Google Scholar; on its nineteenth-century nitrate enterprises, see O'Brien, Thomas F., The Nitrate Industry and Chile's Crucial Transition, 1870–1891 (New York, 1982)Google Scholar, passim; on Gibbs's subsequent ventures, see Archives of Antony Gibbs and Sons, Guildhall Library, London, 11,470/23, 11,041/3, 11,115/1, 11,116/1/2 [hereafter cited as GMS].

43 “Genetal Outline Report on the Chilean Nitrate Industry,” copy enclosed in David Blair to Earl of Curzon, Santiago, 31 July 1919, Foreign Office Archives, Chile, 132/198, Public Record Office, London [cited hereafter as F.O.]; letter #180, Valparaiso, 25 July 1919, GMS 11,470/22; letter #278, London, 17 Sept. 1919, GMS 11,114/4; Herbert Gibbs to E. C. Grenfell, London, 24 July 1919 and Gibbs to Grenfell, London, 18, 26 Nov. 1919, GMS 11,041/3.

44 Letter #185, Valparaiso, 21 Aug. 1919, GMS 11,470/22.

45 Gibbs to Grenfell, London, 18 Nov. 1919.

46 Stickell, “Migration and Mining,” 237; “Report on Compania de Salitre de Chile,” prepared by Division of Latin American Affairs, Department of State, 16 Sept. 1932, General Records of the Department of State, Record Group 59, 825.6374/1054, National Archives, Washington, D.C. [cited hereafter as “Cosach Report”], 27–28.

47 O'Connor, Guggenheims, 413–15; Hoyt, American Dream, 261; Reynolds, “Chile and Copper,” 215–18.

48 Their presence would be sorely missed. One of their replacements, John K. McGowen, a long-time Guggenheim employee, would be ousted in 1929 in yet another policy dispute. The other, engineer Cappelen-Smith, would be unable to master the financial intricacies that became critical to the Guggenheim nitrate undertaking. O'Connor, Guggenheims, 145–46, 412–15, 455.

49 Ibid., 417.

50 Harry Guggenheim to Herbert Hoover, 5 Dec. 1921, Records of the Bureau of Foreign and Domestic Commerce, Record Group 151, National Archives, Washington, D.C. [cited hereafter as R.G 151]; O'Connor, Guggenheims, 412; Ministerio de Hacienda, Industria salitrera, 102. A sign of Harry Guggenheim's continued faith in the nitrate venture was his insistence that he be given a share of the Morgan interests in the nitrate syndicate when Morgan withdrew in 1924; see O'Connor, Guggenheims, 417–18.

51 Stocking and Watkins, Cartels, 141–43.

52 O'Connor, Guggenheims, 418–19.

53 “Cosach Report,” 20–27; Hoyt, American Dream, 285–86, 316.

54 Joslin, David, A Century of Banking in Latin America (London, 1963), 266–68Google Scholar; letter #557, Valparaiso, 10 May 1928; letter #572, Valpariaso, 12 Sept. 1928, both GMS 11,470/28; letter #627, Valparaiso, 12 Nov. 1929; letter #657, Valparaiso, 10 July 1930, both GMS 11,470/29; letter #699, Valparaiso, 27 May 1931; letter #668, London, 24 June 1931, both GMS 16,882/31; Blair to Cullen, Valparaiso, 12 Sept. 1928, GMS 16,875/2.

55 U.S. Ambassador William S. Culbertson to secretary of state, Santiago, 12, 19 Dec. 1928; Culbertson to secretary of state, Santiago, 3 Jan. 1929, both RG 84.

56 Culbertson to secretary of state, Santiago, 3 Jan. 1929.

57 Harry Guggenheim to Hoover, 5 Dec. 1921; Hoyt, American Dream, 302; Brandes, Joseph, Herbert Hoover and Economic Diplomacy: Department of Commerce Policy, 1921–1928 (Pittsburgh, Pa., 1962), 35–147Google Scholar; Rippy, Globe and Hemisphere, 54; Ellsworth, P. T., Chile, an Economy in Transition (New York, 1945), 9Google Scholar; Hoover to Frank B. Kellogg, Washington, 18 Oct. 1926, RG 84. The U.S. government's interest in a domestically controlled nitrogen source became clear in 1916 when the federal government expended $80 million to construct synthetic nitrogen plants at Muscle Shoals. The plants were not completed until 1919 and were then shut down as wartime demand subsided, only to be subsequently reopened and modernized. See Stocking and Watkins, Cartels, 132ff.

58 Ministerio de Hacienda, Industria salitrera, 21; “Cosach Report,” 14–15, 27–28; Hoyt, American Dream, 315–18; Stickell, “Migration and Mining,” 340.

59 “Cosach Report,” 32–35, 83–84.

60 Ibid., 31–33, 41–42, 48–55.

61 Letter #615, Valparaiso, 6 Aug. 1929; letter #621, Valparaiso, 11 Oct. 1929; letter #627, Valparaiso, 12 Nov. 1929, all GMS 11,470/29; letter #652, Valparaiso, 12 June 1930, GMS 11,370/30; Cullen to Cappelen-Smith, London, 4 July 1929; Cullen to Cappelen-Smith, 23 Aug., 3 Oct. 1929, 12, 15 May 1930, all GMS 11,041/6.

62 David Blair to Walter Gibbs, Valparaiso, 31 March 1930, GMS 16,875/2; letter #652, London, 27 March 1931; letter #657, London, 22 April 1931; letter #662, London, 12 May 1931, letter #663, London, 19 May 1931, all GMS 16,882/30; letter #660, Valparaiso, 6 Aug. 1930, GMS 11,470/30.

63 Stickeil, “Migration and Mining,” 340; Stocking and Watkins, Cartels, 135–44; “Cosach Report,” 18.

64 Cosach's $194 million in fixed obligations included $62.5 million of preference shares, $77 million in the bonds of constituent companies, $34 million in bonds raised by the Guggenheims in New York, and $21.4 million in bonds that the Chilean government accepted from Cosach in 1931 in lieu of the cash payment for 1932. The latter measure was one of the desperate efforts to reduce demands on the company's overtaxed revenues. “Cosach Report,” 34, 40; Stocking and Watkins, Cartels, 137; O'Connor, Guggenheims, 453; “Economic and Financial Condition of Chile,” by Raul Simon, May 1932, enclosed in Culbertson to secretary of state, Santiago, 6 June 1932, RG 84 [cited hereafter as “Financial Condition of Chile”].

65 “Financial Condition of Chile.”

66 “Cosach Report,” 33–34; Hoyt, American Dream, 316; Stocking and Watkins, Cartels, 143–44; C. C. Concannon to Edward B. Almon, Washington, D.C., 13 Feb. 1933, RG 151.

67 “Cosach Report,” 42–47. The importance of the nitrate region to agriculturists derived from the fact that the nitrate region had constituted a population of nearly 250,000 people, living in a desert region, and entirely dependent on outside sources for foodstuffs. Eighty-five percent of all agricultural products brought into the region came from Chile's Central Valley; see Cariola, Carman and Sunkel, Osvaldo, “The Growth of the Nitrate Industry and Socioeconomic Change in Chile, 1880–1930,” in The Latin American Economies: Growth and the Export Sector, 1880–1930, ed. Conde, Roberto Cortes and Hunt, Shane J. (New York, 1985), 165.Google Scholar

68 Sir Henry Chilton to Sir John Simon, Santiago, 2, 3 Jan. 1933, F.O. 132/406.

69 Foreign Office to ambassador, London, 4 Jan. 1933; Chilton to Simon, Santiago, 19 Jan., 1 Feb. 1933; memorandum by Commercial Secretary A. J. Pack, Santiago, 2 Feb. 1933; Chilton to Simon, Santiago, 9 Feb. and 1 March 1933; Chilton to Craigie, Santiago, 18 May 1933; Craigie to Chilton, Foreign Office, 6 June 1933, all F.O. 132/406; Culbertson to secretary of state, Santiago, 25 March, 1, 5 April 1933, RG 59, 825.6374/1132/1136/1138; Lawrence Duggan to Edwin C. Wilson, Washington, D.C., 23 May 1933, RG 59, 825.6374/1160; O'Connor, Guggenheims, 455.

70 Davis, John Hagy, The Guggenheims: An American Epic (New York, 1978), 194–95Google Scholar; Stocking and Watkins, Cartels, 159–70.

71 Casson, “General Theories,” 57–59.

72 Stallings, Barbara, Banker to the Third World: U.S. Portfolio Investment in Lattn America, 1900–1986 (Berkeley, Calif., 1987), 198–207Google Scholar; Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), 331–33Google Scholar; Cleveland, Harold van B. and Huertas, Thomas F., Citibank, 1812–1970 (Cambridge, Mass., 1985), 135–39.Google Scholar

73 Even if the Guggenheims had chosen to remain exclusively in Chilean copper, the short-term effects of the Depression would have been devastating. The Braden and Chuquicamata mines, which had combined profits of $4.5 million in 1930, reported zero profits in 1931 and 1932; see Reynolds, “Chile and Copper,” 383.