and :The Electrical Engineering Industry in the United Kingdom and West Germany between 1945 and the Late 1960s Josef Reindl 1 DepartmentofModern History Lud•vig-Maximilians-UniversitdtMiinchen Thispaper contrasts the development of theBritish and the West German electricalengineering industry in one of its mainproduct fields, power plant equipment.It will be arguedthat the outstanding characteristic of British electrical engineeringwas companies' widespread collusive behavior, which created weak competitivepressure. Relying on sustaineddemand from a nationalizedelectric utilityand protectedagainst foreign competition, British large-scale electrical manufacturersneglected export markets and the development and production of consumergoods. The absenceof strongcompetition also prevented an early reorganizationof the industry and allowed inefficient companies to remainin the market.These factors, together with the general problems and shortcomings of Britishindustry, which because they are well known will not be dealt with in this essay[Sked, 1987, pp. 3-39],contributed significantly to the declineof British electricalengineering in termsof marketshare (see Graph 1). In termsof employmentand output,the Britishand West German electricalengineering industries were of similarsize, with West Germany over- takingthe United Kingdom in thelate 1950s. British productivity, measured in outputper employee, was almost always higher than that in WestGermany (see Table1), becauseproduct fields with high capital requirements but low labor intensity,like cables, had a largershare of totalelectrical engineering output in the UnitedKingdom than in WestGermany. There, labor-intensive products like domesticappliances or electricalmeasuring and controllinginstruments for industryhad a comparativelylarger share in totaloutput, leading to loweroverall productivity. Thesemore labor-intensive product groups, however, were also those that exhibitedthe highest growth rates within electrical engineering. The stronger bias of totaloutput toward these fast-growing fields provided West German electrical engineeringwith a structuraladvantage and contributed to itshigh growth rates.

• Theauthor is grateful for helpfulcomments and suggestions by Dr. TimothyLeunig, RoyalHolloway College, London; Dr. James Foreman-Peck, StAntony's College, Oxford; Prof. LeslieHannah, London School of Economics;Prof. Dr. UlrichWengenroth, Technische UniversitStMfinchen; and Prof. William Hausman, College of William& Mary,Williamsburg, Virginia. BEfSINESSAND ECONOMIC HISTORY, Volume Twenty-six, no.2, Winter 1997. Copyright¸1997 bythe Business History Conference. ISSN 0894-6825.

738 ELECTRICAL ENGINEERING IN THE UK AND WEST GERMANY / 739

T able 1: UK/FRG, Empkymentand Gross Ou•out in Ekctrical Engineerin 3 1950-1970 Employment(thousands) GrossOutput (US $ million) UK FRG UK FRG 1950 507.6 252.4 1,605.2 855.2 1954 573.8 462.7 2,492.9 1,983.5 1958 652.6 696.7 3,573.0 3,553.5 1963 765.7 899.5 5,285.2 5,923.5 1968 753.7 903.7 6,606.8 7,882.4 1970 773.1 1,097.7 8,611.3 13,199.1 Compiledand calculated from: UK, BusinessStatistics Office, Historical Record of the Census of Production1907 to 1970,London: Government Statistical Service 1979, pp. 32-33; Zentralverband der ElektrotechnischenIndustrie, Statisl•cherBemht, 1948/49 to 1970Editions, Frankfurt/Main: ZVEI 1949-1971;Gross output in US $ calculatedaccording to the exchangerates in: UN. StatisticalOffice. Department of Economicand Social Affairs, Statistical Yearbook, New York, Vol. 12 (1960),pp. 476-483;Vol. 16 (1964),pp. 552-555;Vol. 23 (1971),pp. 603-604.

Graph 1: W/orldExports of Electrical Engineering Products*, 1913-1970 Percentageshares 70

50.

30-

20.10.

0 I I I I I I 1913 1926 1928 1930 1932 1934 1936 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 *WorldExports defined as accumulated exports of thetwelve leading countries Calculatedfrom: Wirtschaftsgmppe Elektroindustrie, Statistischer BetichtJ•r a•e Elektmindustn'e. InternationalAuflenhandel, 1935, Berlin 1936;1937, Berlin 1938;-, Weltelektroausfuhr, in:EkMrotechnische Zeitschtifi, Vol. 56 (1935), p. 416;Vol. 58 (1937),p. 1380;Zentralverband der Deutschen ElektrotechnischenIndustrie, Die elektmtechnischeIndusMe und a•e EkkMsierungDeutschlands, in: Elektmtechnische Zdtschtifi, Vol. 51 (1930),p. 857; Zentralverbandder Elektrotechnischen Industrie, Statistischer Ben'cht 1960, Frankfurt/Main (1961 ), p. 51;Statistischer Beticht 1966, Frankfurt/Main 1967, p. 45;Statistischer Beticht 1970, Frankfurt/Main1971, p. 41;UN, Yearbookoflnternational Trade Statistics, 1950-1971, New York 1951-1972. 740 / JOSEF REINDL

The oppositewas true for Britishelectrical engineering, where a largershare of outputwas produced in "traditional"fields like cables and wires and a compar- ativelysmaller part was in fast-growingsectors like electricalmeasuring and controllinginstruments for industry. Twomore differences stand out. First, the largest British companies were smallerthan their German counterparts: the combinedsales of the six most importantBritish companies was roughly as large as that of thethree biggest West Germanfirms. Company size is importantin electricalengineering: the wide productrange, the need to achieveoutput volumes large enough to benefitfrom economiesof scale,the requirements for largesales and service networks, and the greatimportance of R&D wereindustry characteristics that rewarded size and gave West Germancompanies an importantcompetitive advantage (see Table 2). Second,although the leadingBritish companies in the early 1950spaid significantlyhigher dividends than the German frores, this situation was reversed in 1958,and German dividends have remained higher since then (see Graph 2). Table2: UK/FRG, gkc#ical Engineering Companies, Turnover inThousand US$, 1959-67 1959 1961 1963 1965 1967 Associated Electrical Industries 583,628 598,324 595,454 712,468 727,972 British Insulated Callender's Cables 358,400 422,800 515,200 711,200 805,750 EMI - - 236,200 280,622 299,485 EnglishElectric 487,200 544,247 585,281 685,549 1,131,774 GeneralElectric Company 302,585 332,066 369,516 472,360 523,444 Plessey - - 270,200 293,069 403,435 SumUK 1,731,813 1,897,437 2,571,851 3,155,268 3,891,860

AEG (1) 512,619 704,250 846,668 1,033,639 1,138,832 RobertBosch 357,143 470,610 560,000 741,250 800,000 Siemens 866,190 1,194,750 1,462,500 1,794,750 1,984,250 Sum FRG 1,735,952 2,369,610 2,869,168 3,569,639 3,923,082 Compiledfrom: "The 100Largest Foreign Industrial Companies," in: Fortune (August Issue), New York, 1960-1962;"The 200 LargestForeign Industrial Companies," in: Fortune(August Issue),New York, 1963-1971.

UK and GermanElectrical Engineering Industries before 1945

As a consequenceof World War I, Germanelectrical engineering lost ks strongposition in theworld market, of whichit hadheld almost 50 percentin 1913.Benefiting from the removal of Germancompetitors and enjoying large- scaledemand from the extension of electricitysupply during the 1920s,British manufacturerswere able to catchup with the United States and Germany. This growthwas accompanied bythe promotion of ,because the British regarded cooperationamong companies asimportant for successfulcompetition in world markets.British entrepreneurs and politicians thereby followed the example of U.S. and Germancompanies, which had dominatedthe worldmarket before WorldWar I byestablishing cartels [Catterall, 1979, p. 242;Gribbin, 1978, p. 1]. ELECTRICAL ENGINEERING IN THE UK AND WEST GERMANY / 741

Gra •h 2: UK/FRG,Ekcttical Engineering Companies, Dividend inPercent, 194 9-66 • 18

14

12

10

8

6

4

2

0

1949 1951 1953 1955 1957 1959 1961 1963 1965

*The valuesfor the UK includethe datafor AEI, EE, andGEC, thosefor the FRG AEG, BBC and Siemens. Calculatedfrom the companies' annual reports in EconomistundVolksmirt. Britishelectrical engineering did well even against the background of the worldeconomic crisis in the1930s, which took a mildcourse in Britain.Output declinedonly in 1931and increased over the Depression period as a whole,with growthrates significanfiy above those of totalindustrial production. The main factorcontributing to the growthof Britishelectrical manufacturing was the constructionof the NationalGrid, a networkof large-scalepower plants connectedby high-voltage transmission lines, undertaken by theCentral Electricity Boardbetween 1927 and 1933 [British Association, 1938, pp. 253-55]. Protectedagainst foreign competition and benefiting from the extension of electricitysupply and risingdemand from privatehouseholds for both electricityand electricalappliances, British electrical engineering enjoyed a prosperousperiod in the 1930s,with growthrates exceeding even those of the 1920s.Electrical engineering had by farthe highest growth rates of allindustrial sectors,with an increase in outputof 82 percentbetween 1929 and 1937 [H.W. Richardson,1967, pp. 25-30, 73, 87]. The financialturmoil and the lack of capitalin the early1920s created substantialproblems for Germanelectrical engineering. With a substantial reductionin exportsand depending mainly on powerplant projects with high capitalrequirements, the industryin additionhad to dealwith the increased strengthof itsmain competitors. After the stabilization of the German currency in 1924,German electric utilities, supported by theinflow of foreigncapital, mainlyfrom the United States, began to extendgenerating capacities on a large scale,which provided electrical engineering companies with substantial demand for theirproducts [Oberlack, 1967, pp. 331-32]. 742 / JOSEF REINDL

The prosperityGerman electrical engineering had enjoyedfrom 1924 onwardended with the slowdown of industrialactivity, the reduction in dectridty consumption,and the sudden retreat of foreigncapital in 1929,which prompted anmediate fallin demandfor electricaland power plant equipment from both industryand electricity suppliers. Orders from the domestic market between 1929 and 1930 fell by 40 percent,which forcednumerous electrical engineering companiesout of businessand created acute difficulties for others[Ekktmtechnische Zeitschrifi,1933, p. 1204]. The overcapacityin electricity generation built up between1924 and 1930 preventedpower companies from ordering new plants even after the end of the Depression.The increasein productionwas mostly met with existingcapacity; between1933 and 1938German electricity output more than doubled, while generatingcapacities increased only by 30 percent.In contrastto thesituation in the 1920s,electrical manufacturers benefited very little from public orders for generatingand transmission equipment in the 1930s.Large-scale orders came insteadfrom all thoseindustries that were expanded as a resultof the National Socialistpolicy of autarky:mining, chemicals, metals, machine tools, and textiles [B.I.O.S.,1947, pp. 1-3, 10]. Armamentled to a significantgrowth of electricityconsumption during WorldWar II, whichin Britainwas compensated for by raisingthe utilization of generatingcapacities from an average of 36 percentin 1938to 50 percentin 1942. Consequently,invesunent in electricutilities during World War II wasmuch lower thanhad been planned before 1939 [Hannah, 1979, pp. 296-99, 310]. In Germany, in contrastto thestagnation of powerplant construction in the 1930s, generating capacitieswere extended between 1940 and 1944 by 30 percent.This substantial increasein powerplant capacities and continued demand for industrial equipment andarmaments production brought about a strongrise in electricalengineering output,which was estimated to havegrown by 60 percentbetween 1939 and 1944 [UnitedStates Strategic Bombing Survey, 1976, pp. 46, 50].

The UK Power Plant Equipment Sectorbetween 1945 and the Late 1960s

Damageto Britishpower stations and the distribution network was small duringWorld War II andthe need for replacement therefore limited: in electricity supplyonly 2 percentof totalassets were destroyed by Germanbombing raids. Despitethe extensionof generatingcapacities undertaken in the immediate postwaryears, however, electricity output was still not sufficient,and the situation deterioratedfurther with theKorea Crisis of 1950,which necessitated repeated powercuts [Hannah, 1979, pp. 293, 310-17,432-33]. Due to the expansionplans in electricitysupply, manufacturers were expectinglarge and growingdemand from the domesticmarket, which was protectedagainst foreign competition. Substantial increases in salesduring the late 1940sappeared to supportthis assumption, and all companies invested heavily to extendmanufacmhng facilities. This activity, together with large stocks and a high volumeof workin progress,increased capital requirements and far exceeded the ELECTRICAL ENGINEERING IN THE UK AND WEST GERMANY / 743

availablefunds, compelling companies toraise money from extemal sources, mainly byobtaining bank credits and issuing new shares [EkctdcalRede:v, 1961, pp. 647-49]. The Britishturbo-generator market was dominated between the endof WorldWar II andthe mid-1960sby four companies:AEI, EnglishElectric, GeneralElectric Company, and C.A. Parsons. The smallnumber of firmsmade cartelarrangements easy, and, based on the experienceof the Depression, recovery,and war, British entrepreneurs and managers after 1945regarded continuedcooperation among firms as an important element of futuresuccess. Companiestherefore continued to offerprices set by cartels and also coordinated biddingon orders,practices favored by high demand from the electricity supply industryin thelate 1940s and early 1950s [ and Restrictive Practices Commission,1957, pp. 5, 47-44,64-68]. Theexistence of cartelsin electricalengineering was also facilitated by the nationalizationof theBritish electric power industry, which essentially left only onecustomer in themarket for powerplant equipment. The nationalizedelectric utilityagreed with manufacturers that only close cooperation among companies guaranteedthe successof Britishindustry in both the domesticand export markets,and therefore no attemptwas made to forcemanufacturers to abolish theircartels [Lord Citrine, 1967, p. 351]. The profitabilityof the domesticmarket for power plant equipment allowedBritish electricalengineering companies like AssociatedElectrical Engineeringand English Electric to paylittle attention to consumergoods. Profit marginsin that segmentwere smalldue to the activitiesof specializedmanu- facturerslike Thorn, EMI, Hoover,and Electrolux, and the possibilities for arrangementswere limited by the large number of producersand the wide variety of products.Repeated intervention by successivegovernments to restrict consumptionby massive tax increases, leading to thewell-known "stop-go cycles," contributedto thegeneral instability of thissector and provided an additional factorthat made consumer goods unattractive to Britain'slarge-scale electrical manufacturers.Although all heavy electrical manufacturers produced consumer goods- therebyfulfilling their claim to offer"everything electrical" - they did so with fairlylimited effort: numerous designs and techniqueshad been retained unchangedsince the prewar years, and advanced manufacturing methods were appliedreluctantly and belatedly because of the low volumeof output[Wray, 1957,pp. 7-8; Hatch,1972, p. 354]. Beginningin themid-1950s, overall business conditions in powerplant equipmentchanged profoundly when demand for conventionalplants fell due to theshift to nuclearpower, which came about as a resultof twodevelopments. In 1952and 1953 Parliamentary committees estimated that British coal output was not suffidentto satisfythe fuel demands of electtidtysuppliers. This at firstgave oil highimportance as a sourceof fuel,but assumptions about future oil supplies weredeeply wrenched by theSuez Crisis, after which a comprehensiveprogram forthe use of nuclearenergy was initiated. In March1957 the Cabinet adopted the AtomicEnergy Authority's proposal to commission6,000 MW of generating capacityin nuclearpower plants by 1965[Hannah, 1982, pp. 168-81,229]. 744 / JOSEFREINDL

Nuclearpower became the centerpiece of Britishenergy policy, and the expectationof large-scaleorders for nineteennuclear power plants, representing abouttwo-thirds of totalgenerating plant orders and 90 percentof estimated generatingplant expenditures in the firsthalf of the 1960s,prompted electrical manufacturersto shift resources toward the nuclear sector. Because of thegovern- mentpolicy of developingnuclear weapons without relying on theUnited States, it wasdecided to focuson nuclearpower plants capable of producingthe atomic materialnecessary for militarypurposes. This preventedBritain from licensing U.S.power plant designs and instead induced manufacturers to develop their own nuclearpower plant designs, which, as was later realized, put enormous strata on the companies'financial means. Investment in conventionalpower plants was reducedat thesame time, exacerbating the problem of manufacturingovercapacity andleading to a rapidreduction of profitmargins [Ek•ricalReview, 1961, pp. 1001-2; Surreyand Walker, 1983, pp. 142-43;Hannah, 1982, p. 117]. Besideshaving to dealwith a lowervolume of ordersfor conventional powerplants, manufacturers were also confronted with risingcriticism of their cartelarrangements, especially after the 1956 publication of a reportprepared by the HerbertCommittee, which criticized the nationalizedelectric company for purchasingoverpriced equipment from domesticmanufacturers among whom therewas no competition.The BritishElectrical and Allied Manufacturers Association(BEAMA) and the manufacturers protested against these findings and defendedtheir pricing policy, but in the followingyear the newlyestablished Monopoliesand Restrictive Trade Practices Commission published its Reporton theSuppp and Exports of Ekctrical and /lllied Machinery and Plant. The reportdisclosed how the companiesjointly fixed minimum prices and argued that this practice protectedless efficient producers, which were thereby enabled to remainon the market. The Commission therefore recommended the abolition of manufacturers' price agreements,a coursethat was again heavilycriticized by electrical manufacturersand BEAMA [Monopoliesand Restrictive Practices Commission, 1957,pp. 1-21;The Economist, 1957, pp. 745-46;1959, pp. 1196-99]. Despitetheir protests, electrical manufacturers formally adhered to the recommendationsof the Restrictive Trade Practices and Monopolies Commission, butthey soon established other forms of cooperation.Cartels, although formally dissolved,continued to existbecause companies adopted a systemcalled "price leadership,"under which the leading manufacturers set a priceand "notified" all the othercompanies, which then voluntarily quoted the same price; no attempt was madeto outlawthis practice[Ekctdcal Review, 1961, pp. 1059-60;G.B. Richardson,1966, p. 79]. It is importantto note that priceswere set at a levelthat allowedall manufacturersto remain in themarket. Although the market leaders thereby relin- quishedthe chance to strengthentheir position by eliminating weak competitors, the pricelevel chosen provided them with substantialprofit margins[PRO, POWE 24,Committee of Inquiryinto the Electricity Supply Industry, p. 445].The highprofitability of thedomestic power plant equipment market allowed British manufacturersto neglect exports; only limited efforts were made to establishand strengthensales networks abroad. In 1967,for example, Siemens had one hundred ELECTRICAL ENGINEERING IN THE UK AND WEST GERMANY / 745 forty-sevensales engineers in the United Kingdom, while there were only four sales engineersof EnglishElectric in WestGermany [EkctricalEngineering• 1968,p. 43]. Basedon thehigh targets for Britain'seconomic growth laid down in the NationalPlans, the nationalizedelectric utility substantially increased orders for powerplant equipment in 1963and 1964 to dealwith the expected increase in the demandfor electricity.The volumeof ordersin factexceeded the capacitiesof Britishmanufacturers, and generatingequipment was therefore imported and temporarilyexempted from import duties. But actual growth was much lower than planned,and in themid-1960s the nationalized electric utility had to recognizethat previousinvestment decisions had been too high.Orders were therefore reduced substantially,which profoundly changed business conditions for manufacturers of powerplant equipment. Against the backgroundof the generaleconomic slowdown,the manufacturers found themselves in a situationin whichtheir only customerwas no longerplacing orders. These circumstances led to substantial manufacturingovercapacity, even as high indebtedness severely restricted liquidity andprofitability [Electrical Review, 1964, p. 400;The Economist, 1967, pp. 819-20; 1967,p. 556]. The only exceptionwas GEC. Relievedfrom the burdenof its turbo- generatorbusiness, which had been sold to C. A. Parsonsin 1965,and benefiting fromgrowing sales and profits in variousother product fields, GEC put in a bid for AEI in 1967[ElectricalReview, 1967, p. 952].After meetinginitial resistance, GEC finallysucceeded in persuading AEI's shareholdersto accept the takeover. TheEconomist reported: "AEI failednot because of anyweakness in itsdefence, but becauseof the incubusin its past.The bulkof its shareholdershave had enough of bright promises...And when a companyrepeatedly disappoints its shareholders,they remember, and the harvest will be reaped..."[1967, p. 661]. Talksbetween GEC andEnglish Electric followed, and in September1968 theBoard of Tradeand Industrial Reorganization Corporation (IRC) approved a mergerof thetwo companies. Jones and Marriott pointed to thehigh debt level of EnglishElectric and commented: "This large debt element in the capital structurewas one of the thingsthat madeEnglish Electric vulnerable to a takeover"[Jones and Marriott, 1970, p. 290].

The West GermanPower Plant EquipmentSector between 1945 and the Late 1960s

DuringWorld War II damageto theGerman electricity supply system was fairlylimited, although a rapid increase in outputafter 1945 was prevented by coal shortagesand the breakdownof power plantsdue to the wartimelack of maintenance.The electricalengineering industry had lost almost all assetsin its traditionalcenter, Berlin, but aftermanufacturing facilities had been erected in WestGermany, production picked up, and in 1950the output of almostall sectors of electricalengineering exceeded prewar levels [Elektm-Post, 1951, p. 11]. The shortageof capitalamong electricity supply undertakings represented the most importantobstacle to a rapidincrease in the productionof heavy electricalequipment. The capitalprovided by theEuropean Recovery Program 746 / JOSEF REINDL and the state-runKreditanstalt f/ix Wiederaufbau(Reconstruction Finance Corporation)therefore assumed great importance. Electricity supply became the singlemost important West German economic sector, receiving credits with which about45 percent of totalinvestments were financed, thereby creating large demand fromwhich electrical manufacturers benefited [Elektti•t'•'tswirtschafi, 1953, p. 625]. TheWest German power plant equipment market differed from the British in threerespects. First, because there were numerous electricity supply companies, bothin privateand in publicownership, there was not one but many customers. Second,a substantialshare of powerplant equipment was purchased by German industry,especially by coal,steel, and chemical companies. In contrastto the UnitedKingdom, where industry relied on publicsupply, German industrial companiestraditionally generated electricity for theirown requirements and sold surplusproduction to utilitycompanies. In 1960, for instance, 35.7 percent of total electricityoutput in Germanywas generated by industry [l/'olkswirt, 1960, p. 2687; Schaff,1967, pp. 96-97]. WestGerman manufacturers of power plant equipment therefore had to dealwith a largenumber of customers,making price agreements much more difficultthan in theUnited Kingdom. Moreover, supply undertakings traditionally allocatedorders after competitivebidding among German manufacturers [Ekktri•i•Is•virtschafl,1984,p. 475].Competitive pressure also increased as a result of legislativedevelopments that made it moredifficult for West German than for Britishcompanies to establishcartels. First, the Allies implemented a policy of decartelization,intended to preventany concentrationof economicpower in Germany:The Decartelizationand Industrial Deconcentration Group (DIDEG) of theAllied High Commissionlooked for priceand cartel-like agreements and repeatedlyourawed them [Bundesarchiv Koblenz, B 102,192425, Preisabsprachen in derElektroschaltetindustrie, 1948-1952]. Second, in theearly decades of theFederal Republicthe architectsof the So•ialeMarktmt'rtschaJ? () regardedcompetition as essentialfor economicprosperity. The GesetEgegen IVettbe•verbsbeschri•)tk•ngen(Lawagainst Rectrictions of Competition)was passed in 1957despite heavy resistance from trade and industry, which wanted to maintain theirright to formtrade associations and cartels. Although the law as enacted was much more permissivetoward the formationof cartelsthan was initially envisaged,the Federal Republic of the1950s and 1960s nevertheless had one of the most restrictivepro-competition legislative regimes of all the Western countries.Together with otherfactors like low tariffsthe legalenvironment contributedto ensurecompetitive pressure higher than in mostother countries [G6rgens,1969, pp. 136-40,144-48, 156-59; Nicholls, 1994, pp. 325,332-36]. As in theUnited Kingdom, consumer goods were manufactured in West Germanyby the large-scale electrical engineering companies aspart of a broadand diversifiedproduct range and by specialty producers who concentrated exclusively on consumergoods. But in contrastto Britishproducers, the large West German electricalengineering companies were also the most important manufacturers of electricalconsumer goods: Robert Bosch in refrigeratorsand Siemens in washing machines.Siemens and AEG hadproduced consumer goods even before World WarI andtraditionally relied on a diversifiedproduction program, which helped ELECTRICAL ENGINEERING IN THE UK AND WEST GERMANY / 747

to compensatefor temporarylow salesin somebusiness sectors. Bosch had movedinto the consumermarket during the interwar years to compensatefor seasonalsales declines in thecompany's main field of activity,electrical automotive equipment[Feldenkirchen, 1995, pp. 42-43, 68; Herdt, 1986, pp. 36, 81]. Giventheir resources, large-scale manufacturers were able to invest heavily in thedevelopment and production of consumer goods and also in establishing the facilitiesnecessary for exports.As a result,the output of WestGermany's largestelectrical consumer goods manufacturers was nearer to the minimum efficientscale required to employthe most advanced production technologies than wasthe case for UK producers,providing the German firms with an important competitiveadvantage [Owen, 1983, pp. 122-25,131-35]. Asin theUnited Kingdom, the supply of coalhad important repercussions onWest German electricity supply. Although in 1957coal output was barely able to keepup with demand from electricity suppliers, the situation was reversed in 1958.Thereafter the West German coal industry had to dealwith insufficient demand,which was in partthe result of theincreased use of offfor electricity generation.When it wasrecognized that this development threatened the position of theWest German coal industry, two actswere passed in 1965and 1966 that grantedtax reductions and subsidies to supplyundertakings that used coal for electricitygeneration or constructednew coal-fired power plants. Compared to the intentof thelegislation, the overall effects of thispolicy were disappointing. While in 1950more than three-quarters of the primaryfuel consumed by electricity supplywas coal, this share fell to one-thirdin 1967,as employment in theWest Germancoal industry fell from 600,000 to 300,000in thesame period [l/o]•swirt 1967,p. 2783;Kruse, 1972, p. 244]. In the late 1950sWest Germanybegan to employnuclear power for electricitygeneration after Allied restrictions had been removed. But an earlier and morewidespread use of nuclearplants was prevented not onlyby Allied restric- tions,but alsobecause of thesupport given to coaland coal-fired power plants. WestGerman manufacturers could therefore rely on continuallygrowing demand for conventionalpower plants, while the exclusivefocus on the applicationof nuclearpower for non-militarypurposes allowed Siemens and AEG to license light-waterreactors from their traditionalU.S. partnersGeneral Electric and Westinghouse.These reactors were of simpledesign and comparatively cheap, and both companiesbegan to constructtheir own reactorsbased on U.S. designs, givingWest German companies lower development costs than their U.K. counter- parts[Ekktri•itditswirtschafi, 1967,p. 375;Surrey and Walker, 1983, pp. 143-47]. Electricalengineering output expanded more slowly in thefirst half of the 1960sthan it hadin the 1950s,and the growthprocess ended in 1966,partly becauseof theraising of thediscount rate by the Bundesbank, which was intended to counterinflationary pressure. This action contributed to thegeneral slowdown of economicgrowth and falling demand from the domestic market. Rising interest ratesand labor costsreduced the industry'sprofit marginsand prompted companiesto delayinvestment decisions. Heavy electrical engineering, as an importantsupplier of capitalgoods, was hit particularlyhard by thisdownturn, andall companiessuffered from falling sales and profits. In 1966the volume of 748 / JOSEFREINDL ordersfrom the domesticmarket was declining,and in 1967 total industrial investmentin WestGerman industry feU in comparisonto the previousyear for the firsttime sincereconstruction [Folksuit't, 1966, p. 1049;1967, p. 338, 1023; Gierschet al., 1992,pp. 144-45].

Conclusion

The outstandingdifference between British and West German electrical engineeringwas the widespread collusive behavior of companiesin the United Kingdom,which created low competitive pressure, particularly in the power phnt equipmentmarket. Large-scale manufacturers like AEI, EnglishElectric, and GEC wereprotected in thismarket against foreign competitors and enjoyed large and stableprofits. The smallnumber of companiesand the hck of pro-competition legislationmade the formationof cartelseasy. They were supportedby the purchasingpolicy of themost important customer of powerphnt equipment, the nationalizedelectricity supply, which did not force manufacturers into competitive bidding. Thissituation created low competitive pressure in theBritish power plant equipmentmarket, allowing the survival of inefficientcompanies and also prevent- ing an earlyreorganization of the industry.In contrast,the largenumber of regionalutilities in WestGermany relied in theirpurchasing policy on competitive bidding.Power phnt equipmentwas also purchased by various other industrial sectors,because German industry traditionally generated a large share of the electricityrequired on its premisesand sold surplus production to the utilities, whereasin theUnited Kingdom industries generally purchased electricity from the publicsupply. These differences contributed to higher market pressure on West Germanmanufacturers, which forced them to relyon exportsand on other productmarkets, including electric consumer durables. In theUnited Kingdom high demand from the nationalized electric utility andthe protection from foreign competition promised long-term prosperity in the powerphnt equipmentmarket, allowing British large-scale electrical manufac- turersto neglectthe developmentof consumergoods and exportmarkets. Althoughthey aimed to produce"everything electrical" and offered an almost completerange of electricalconsumer goods, the segment had little importance withintheir total business, whereas in WestGermany the large-scale electrical manufacturerswere also among the mostimportant producers of consumer goods.The limited activities of Britain'selectrical giants in consumergoods had importantconsequences forBritish electrical engineering asa whole.Diversified large-scalecompanies like Siemens and AEG wereactive in a varietyof product fields.This diversity made them less vulnerable to a depressionin one product sectorand also gave them greater resources for R&D, a broaderscope in financial operations,and a higherpropensity to export. Politicaldecisions of British governments had important effects on general businessconditions in the electrical engineering industry. First was the purchasing policyof thenationalized electricity supply and governments' pro-competition policyin thefield of powerplant equipment, even though they did not succeed in ELECTRICAL ENGINEERING IN THE UK AND WEST GERMANY / 749 abolishingrestrictive trade practices. Second was the decision to concentrateon nudeatpower for electricity generation, which led to a sharpdecline in thedemand forconventional power plants. Finally, the high importance given to themih'tary applicationof nuclearpower prompted the United Kingdom to developits own nucleatpower plant designs. In contrast,West German manufacturers could rely onlicensing U.S. plants, resulting in lowdevelopment and production costs. It is importantto emphasizethat at leastin short-and medium-term perspectivesBritish electrical engineering companies acted quite rationally. Exist- ingin a marketwith low competitive pressure, they were able to fulfillthe aim of anyenterprise in a marketeconomy - to gainprofits - quitesuccessfully, atleast duringthe 1950s. But this "atmosphere of cozy inefficiency" [Jones and Marriott, 1970]in Britishelectrical engineering disappeared in the wakeof profound changesin overallbusiness conditions, and several companies were not in a pos- itionto adaptto thenew situation. Seen from the perspective of economic theory, thisoutcome is not surprising:if competition is anessential factor for economic growthand if the markethas to be regarded,at leastin principle,as the most efficientinsmunent for theallocation of resources,the elimination of competition asthe main "ingredient" of the market mechanism isbound to haveconsequences.

References

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