Power Delayed: Iraq’s Electricity Crisis

If the thought of multimillion dollar turbines left out to rust offends one’s economical sensibilities, it should. By accelerating the speed of the transmission of goods, people, and ideas, infrastructure has long been seen as the principal vehicle for industrial advancement. Observing how closely electricity demand tracked a country’s gross domestic product (GDP), economists have argued that increased electricity consumption is not only the barometer but the engine of an economy’s growth. In their theorization, the function of infrastructure is to facilitate the productive capacities of society; its high capital and maintenance costs merely serve as a mean to that greater end. Yet, the divergence between Iraq’s electrical grid and the provisioning of basic services to its citizens invites us to rethink the relationship between infrastructure and growth. The increase in generating capacity has not materialized a progression of the Iraqi economy. With electricity expenses occupying 7% of the nation’s GDP, the only related economic statistic has been an increase in sovereign debt.^[1] Under such an arrangement, it may be fair to say that infrastructure in Iraq has only truly acted to create a dependable flow of money from the Iraqi foreign reserve to foreign contractors, banks, and electric companies from turbine sales, servicing fees, and interest payments.

In “Infrastructure Works on Time,” Timothy Mitchell argues precisely for the adoption of such a perspective. For Mitchell, the physical, technical and political strength of infrastructure “introduces an interruption, a gap, out of which the present extracts wealth from the future.”^[2] Citing railways, he explains how their long-lasting steel rails and exclusive licenses to operate create a credible means of capturing revenue for decades. By delaying income far into the future and selling the promise of those prospective earnings, the railroad owner enjoys an immense windfall in the present. In this light, the value of constructing railways does not depend on the number of people or goods that travel in its cars. Rather, railways generate their value from there being no better option for transportation for that year and many years ahead. The essence of capital then is its “to push something into the future yet continue to control it.”^[3] At the heart of the industrial revolution, the history of the electricity infrastructure may offer an even clearer picture of the relationship between capital and delay.

At the introduction of modern electrical systems, their proponents understood that the success of their scientific inventions would depend largely on financial and legal support. Thomas Edison founded the Edison Electric Illuminating Company on a loan collateralized for his incandescent electric light bulb patent. True to form, the first power generation station was built in the heart of the New York City’s financial district to light up the bank offices of Drexel, Morgan, and Company on 23 Wall Street. Following the success of his pilot projects in the United States, Edison leapt to Germany where he negotiated a licensing deal with the firm Siemens & Halske. Together, these corporations would form some of the largest multinational conglomerates in modern history: General Electric (GE), Siemens AG, JPMorgan Chase, Morgan Stanley, and Deutsche Bank.

These linkages are far from circumstantial. The research, development, and mass market distribution of electricity are fundamentally intertwined with finance. In his history of the electrification of Western society, Thomas Hughes describes the economics of early power systems via the ‘reverse salient:’ a breakthrough that that rapidly changes the landscape to results in a sudden and rapid advancement. For Hughes, early electrical power systems were at an impasse. Unable to produce light at a lower price than gas, electricity would not reach widespread adoption. The problem that Edison set out to solve, then, was “inseparably technical and economic.”^[4] While Edison could sell Wall Street on luxurious artificially light office spaces, the early limitations of power generation and distribution greatly constricted the growth of the industry. There are two features of electricity production that make inherently difficult to form economies of scale. First, the greater distance electricity is transmitted, the more current is lost. Accordingly, any gains from building large production sites in distant, less expensive areas are lost in delivery. Second, electricity demand peaks in the morning and evening with large periods of little to no use during the day when the sun is out or at night when people sleep. Starting up and running large turbines only to meet the peaks is therefore simply unaffordable. Accordingly, banks and businesses did not see a commercial future for a distributed grid of small, independently run power generators.

With his own life fully invested in the success of these systems, Edison attempted to transform the business model of electricity. This process elicited the financialization of electricity. First, electricity had to be transformed into a commodity. In 1881, Edison invented the chemical meter. Prior to that point, Edison had sold his systems on the number of light fixtures installed. Now an individual’s consumption could be measured, recorded, and most importantly, charged on the basis of their usage over time. Once the watt-hour could be converted into dollar charges, electricity could be annuitized into a recurring stream of revenue via the electricity bill. In order to build up economies of scale, Edison repeatedly staked his fortunes to fund his research and development to shore up demand for power. He spent decades designing and patenting a portfolio of durable uses for electricity: a longer lasting incandescent bulb, the record player and high voltage microphone, the film projector and on. Edison’s personal assistant Samuel Insull went so far as to bribe city officials for contracts and aggressively marketing refrigerators, stoves, and water heaters to raise consumer demand.^[5] As Edison’s biographer Paul Israel famously stated, “while Edison the individual is celebrated as the inventor of the electric light, it was the less visible corporate organization of laboratory and business enterprise that allowed him to succeed.”^[6]

For all of Edison’s efforts, he had still not built an electricity infrastructure. Instead, it was his competitors who saw potential in alternating current (AC) systems to create a monopoly through large scale electricity production. AC systems could step up voltage to drastically reduce transmission losses over long distances. Low generation costs allowed such systems to outcompete direct current systems on price and the high upfront costs of building out power plants created a high barrier to entry. With a clear path to form a monopoly, the only challenge left was the exceedingly difficult task of synchronizing three motors to create an alternating current. Here, Hughes identifies Nikola Tesla’s invention of the polyphase motor as the reverse salient that popularized electricity systems. Yet might be more accurate to recognize the underlying financial infrastructure as the true breakthrough. For being the revolutionary Hughes sees as changing technology forever, the polyphasic motor was outright rejected by Edison. Edison had no interest in losing the royalties on his hundreds of patents that depended on direct current. Tesla would circumvent his former employer by entering a partnership with George Westinghouse to build the first industrial scale AC system at Niagara Falls. Edison’s financier JP Morgan saw the writing on the wall. Threatening copyright infringement litigation, Morgan coerced Westinghouse for Tesla’s patent and led a merger between Edison’s Electric Company and its main rival Thomson-Houston under a new name.^[7] The end to the infamous War of the Currents was not brought out by the technological superiority of AC systems, but the birth of a financial, legal, and technological monopoly: General Electric (GE).

The history of the early electrical pursuits reveals an important truth. The storied rise of electrical systems was neither natural nor obvious. Repeatedly forestalled by the financial viability of electricity’s physical constraints, the modern business of power had to continually reconfigure the American lifestyle and landscape to establish a guaranteed source of future profits. To generate power at a price low enough to outcompete gas but at a margin high enough to secure additional financing, power producers engineered a system and market that depended on massive consumer demand. These great efforts to align electrical systems and capital reveal precisely how tenuous their relationship is. Power production exists not to generate energy for consumption but to manufacture a new capitalizable asset class. The result is a sprawling network of generation stations and transmission lines feeding thousands of gigawatt-hours to power intensive appliances across the nation.