An historical retrospective on the countervailing forces of Dark Suckers: Surge of Interest in Electricity Mirrors Today's Internet Hype. By DAVID WESSEL
Staff Reporter of THE WALL STREET JOURNAL
Quick: Think of a new end-of-the-century technology that captivates
entrepreneurs and investors and sends stock prices of pioneering
companies to unimaginable heights.
Try electricity in late-19th-century London, a time and a place in the throes
of a "hectic boom in electric lighting shares," as one historian has put it. It is
a tale whose inception has eerie similarities to today's huge run-ups in
Internet stocks and might be considered cautionary: The English
electric-light boom wasn't only brief, but was followed by a bust that set
back the widespread use of electricity in Britain for decades.
The 1880s were a time of technological turmoil. Many of the companies
that seemed to have the hottest prospects, it turned out, didn't have the
winning technology. The clout and staying power of electricity's chief
competitors -- gas utilities run by local governments -- proved to be much
greater in Britain than in the U.S. And clumsy government regulation also
handicapped the highflying industry.
"The electric light is very probably a great invention, and ... let us take for
granted that its future development will be vast," the Economist weekly
newspaper cautioned presciently on May 20, 1882. "But this, unhappily,
cannot be urged as a reason why the pioneer companies should always be
prosperous."
Leslie Hannah, dean of London's City University Business School and
author of a book on the history of electricity in Britain, says: "It's the huge
successes that people remember when they pour money into new
technology. There is that element in the 1880s and now."
Euphoric Investors
In the spring of 1882, a time when gas was the most widely used source of
indoor lighting in London, euphoric investors pushed up prices for shares
of the first companies to license various patents for equipment to power
electric lights. The same companies often manufactured products and sold
the service.
Seeing investors' appetite, other electric companies rushed to the market.
In the two weeks before the Economist's caution, 16 lighting companies
sold shares to the public, raising 2.85 million pounds (roughly 126 million
pounds at today's prices, or $210 million in today's U.S. dollars). But few
of the companies prospered.
Hammond Electric Light & Power Supply
Ltd. sold shares in the spring of 1882 for a
bit more than 2 pounds each. By May 16,
the shares were trading at 21 pounds
apiece. A month later, they had dropped
below 15 pounds, and they ended the year
at 3 pounds. The company was liquidated
three years later.
Another company, Anglo-American Brush
Electric Light Corp., had been formed in
1880 to exploit British rights to patents held
by American inventor C.F. Brush. It sold
equipment itself and licensed others to sell it
in other regions. At the beginning of 1882,
the company's shares were trading in London at 9 pounds. In mid-May,
the shares hit a peak of 31 pounds. By the end of 1882, Anglo-American
Brush's stock was at 6 pounds.
Then things got worse. Both Anglo-American Brush and a competitor had
purchased what each had thought was the exclusive right to an important
invention. And companies to which Brush had sold concessions began to
sell them back.
Thomas Hughes, a retired University
of Pennsylvania historian of
technology and author of "Networks
of Power," wrote in that book that by
1883 Anglo-American "stood
revealed as a patent-holding and
manufacturing company which had
been founded on an arc-lighting
system that was no longer outstanding
in the field and on an
incandescent-lamp patent of doubtful
value." Angry shareholders forced a
reorganization of the company.
The excitement surrounding electricity coincided with growing speculation
in industrial stocks. In 1876, financial promoter Albert Grant wrote of the
period as "an era when everyone was seeking what he could make on the
Stock Exchange. . . . I know hundreds who would rather make 50 pounds
on the Stock Exchange than 250 pounds by the exercise of their
profession."
'Daily Increasing Demand'
During the electric-light boom, some companies issued shares through
blue-chip merchant banks, but others attracted investors through
newspaper ads. An 1882 ad for the Gulcher Electric Light & Power Co.,
formed to promote a light bulb invented by one R.J. Gulcher, read like a
carnival barker's pitch: "This company has been formed to supply the daily
increasing demand for the Electric Light, which has now, by reason of its
great illuminating power, its freedom from heat, noxious vapours, smoke
and danger by explosion, been recognised as the light of the immediate
future."
To some historians, all the electricity hype masked what was basically a
scam. Mr. Hannah, the City University Business School dean, has written
that the promoters of shares in electric companies made exaggerated
claims to "a prematurely enthusiastic investing public," adding: "Most of this
money appears to have been applied to paying worthless patent fees for
often fraudulent inventions, legal expenses and promoters' profits, rather
than to the real capital development of the industry."
Mr. Hughes, the Penn historian, says
the episode illustrates the power of
government and vested interests to
disrupt the promise of a new
technology. Newly formed electric
utilities needed permission to dig up
the streets to lay power lines. The
Electric Light Act, passed by
Parliament in 1882, regulated the
companies; among other things, it
gave municipal authorities, who were
partial to gas, the right to buy the local
companies after 21 years on terms
very unfavorable to private investors.
This and other provisions were changed by Parliament six years later, but
damage had been done.
"The disillusionment of private investors in 1882 after the collapse of stock
market speculation, together with the passage of the Electric Light Act,
discouraged risk taking," Mr. Hughes has written."
The laws, he added, "reflected the pervasively conservative attitudes of
economic, political and technological interest groups that were quite
content with ... a world without electric power systems." |
