The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  At the peak, in 1929, Insull’s empire of holding and operating companies, valued in the billions, controlled power companies in 32 states; and he held 65 chairmanships, 85 directorships, and 11 presidencies. He was a man of wide renown and a great benefactor. He was the “presiding angel” of the Civic Opera House in Chicago and was responsible for its building.

  Reporters constantly sought out his wisdom. Asked by one reporter for his advice to young men starting out, he said, “Aim for the top.” And what was his “greatest ambition in life”?

  “To hand down my name as clean as I received it,” he replied.

  That was not quite to be.17

  “I HAVE ERRED”: TOO MUCH DEBT

  In the booming late 1920s, Insull’s empire went on a buying spree, acquiring new companies and consolidating control of its holdings—all of this at higher and higher prices. In December 1928 he created a new company, Insull Utilities Investments, and to assure his control over his empire, he issued shares to the public at $12. Before the summer of 1929 was out, the stock had hit $150.18

  The business required continually greater scale to bring down costs, deliver cheaper power, expand the customer base—and to assure profits. But such expansion created enormous capital needs, which Insull met by taking on more debt and by selling common stock to customers and the public. Insull relentlessly pursued growth. Even after the 1929 stock crash, his companies were still making investments, and taking on still more debt with some abandon. The enterprise became leveraged to an extraordinary degree. Moreover, Insull’s accounting practices were suspect. His companies, it was said, would overcharge each other for services. They would also sell assets among themselves, marking up the book values after the sales; they virtually ignored accounting for the depreciation of assets. The whole business was predicated on Insull’s ability to continue raising massive sums, even as investors had little understanding of the actual finances of the companies. But time was running out.

  As the Great Depression deepened and the stock market continued to decline, banks began to call in their loans from Insull. The ugly reality became clear: the debt he had taken on for acquisitions far exceeded the value of the stock that had been pledged as collateral, for the value of this stock had been plummeting. “I have erred,” Insull said. “My greatest error was in underestimating the effect of the financial panic.”19

  In 1932 Insull’s whole empire collapsed, done in by its debt and intricately complex corporate structure. When the bankers, at a meeting in New York, told Insull that they would give him no more respite and were pulling his loans, he is reported to have said, “I wish my time on earth had already come.”

  The New York Times had described Insull as a man of “foresight and vision . . . one of the foremost and greatest builders of American industrial empires.” But now Insull was disgraced; “too broke to be bankrupt,” said one banker. Insull’s fall from the pinnacle was as precipitous and calamitous as any in American history.20

  Thousands of small investors were left holding securities worth only pennies on the dollar. The federal government launched criminal charges against him for fraud and embezzlement. Not only was he now poor, he had also become, according to both prosecutors and much of the public, a scoundrel, an embezzler, and a crook. Everything else was forgotten.

  But Insull was more than the scapegoat for the Great Depression. He had very quickly become the very embodiment of the evils of capitalism in an economically prostrate country that was close to losing faith in the system. Franklin Roosevelt, campaigning for president in 1932, pledged “to get” the Insulls.

  Insull fled the country. He chartered a Greek freighter to cruise the Mediterranean while considering taking up an offer to become minister of power of Rumania or seeking political asylum elsewhere. When he docked in Istanbul, the Turkish authorities arrested him and packed him back to the United States, where the small, white-haired 74-year-old was transited, under armed guard, to a Chicago courthouse. Formidable prosecutorial talent was arrayed against Insull.

  The jury took just five minutes to come to its decision. But the jurors, in order to avoid any suspicion, used various ruses to stall, including ordering in a cake and coffee and holding a birthday party for one of them. Finally, the jurors walked back into the courtroom with their decision. Insull was not guilty.

  Despite his acquittal, Insull decided it would be better to live out his life in Paris. He had lost virtually all his money; even the ownership of his shirt studs became the subject of a lawsuit. In order to save money, Insull made his way around the city on the Paris Metro. In 1938 he collapsed from a heart attack at the Place de la Concorde station. There he died clutching a subway ticket in his right hand. The press pounced on the fact that the great capitalist, the architect of the modern electric power industry, had died so poor that he was found virtually penniless, with just a few centimes in his pocket. He had little in personal effects to leave behind. His legacy was the business model for electric power.21

  THE NEW DEAL: COMPLETING THE ELECTRIFICATION OF AMERICA

  The hostility toward Insull and the holding-company structure was enormous. It was widely believed that speculators and bankers had used the holding-company system to gouge customers, loot the utilities, and make inordinate and unconscionable profits. The Federal Trade Commission left no doubt of its view of the system epitomized by Insull with the following words—“fraud, deceit, misrepresentation, dishonesty, breach of trust and oppression.”22

  But Insull’s vision had also made electricity available to millions of Americans. “The decades of complex system-building were easier to ignore or forget,” wrote one scholar of the electric power industry. “They involved difficult concepts, esoteric technology, uncommon economics, and sophisticated management.” Insull’s empire, and the business model he developed, brought the U.S. public affordable reliable electric power in a remarkably short period of time.

  A top New Deal priority was to eliminate the holding-company system pioneered by Insull and by which most of the U.S. power industry operated. The utilities and their supporters fought back in the most contentious and bitter domestic political battle of the entire New Deal. “I am against private socialism of concentrated power as thoroughly as I am against governmental socialism,” Roosevelt declared. And in the end the New Deal did prevail with the historic Public Utility Holding Act of 1935, which defined the new legal structure of the electric power industry. Designed to get the Insulls out of electric power, it dealt what was triumphantly called “the death sentence” to the kind of complex holding-company network that Insull had masterminded. Holding companies were effectively permitted only for utilities that were geographically adjacent and in some way physically integrated.23

  But when it came to electricity, the nation was divided in two. City dwellers had easy access to power, provided either by investor-owned utilities or municipality owned. But rural dwellers had almost no access. Investor-owned utilities were not stringing lines out into the countryside because, they said, the costs were too high and the load density too low.

  This left farmers stuck in the nineteenth century with endless hours of backbreaking labor. Cows had to be milked by hand. There were no refrigerators to keep food fresh long enough to get it to market. It was even worse for the farmer’s wife. Hours had to be spent tending the hot stove; more hours beating the laundry clean outside. By one estimate, it took 63 eight-hour days a year per farm to pump and haul water back to the house. Half of all farm families did their laundry and bathed their children outside. All because there was no electricity.24

  This changed with the New Deal, beginning with a federally owned dam at Muscle Shoals, in Alabama, which had been built to provide power for manufacturing explosives during the First World War. After a bruising political battle, it became the starting point for the government-owned Tennessee Valley Authority, with another 20 or so dams to be built as part of the system.

  In 1936 Roosevelt signed legislation creating the R
ural Electrification Administration. It provided loans to rural cooperatives, which built transmission and distribution lines to isolated farms across America that, until then, had had to depend upon kerosene lamps for their light and exhausting labor for their power. Some of the co-ops also went into electricity generation.

  Other legislation established marketing authorities that gave preference to rural cooperatives and municipals for the power generated by the big new federal dams, like Bonneville and Grand Coulee in the northwest, and the Hoover Dam on the Colorado. The REA and the cooperatives that worked with it transformed the life of rural America.

  “LIVE BETTER ELECTRICALLY”

  The 1950s and 1960s were the years in which America really became an electrified society. With the end of World War II, millions of U.S. soldiers returned home. Rising marriage and birth rates, combined with the G.I. Bill that made it easier for veterans to purchase homes, led to a surge in demand for new houses. A great suburban house-building movement rolled out from the cities, with more than 13 million new homes built in the United States between 1945 and 1954—and with electricity playing an increasingly important role in the American home and American life. During the postwar years of the 1950s, U.S. electricity demand grew at an astounding annual rate of 10 percent (compared with about 1 percent in recent years) as more and more uses were found for electricity in homes, offices, and factories.25

  Nothing so much captured the build-out of electricity in the postwar era as General Electric’s “Live Better Electrically” campaign, launched in the mid-1950s and supported by 300 utilities. But such a campaign needed a spokesman, indeed a national champion. It turned toward Hollywood.

  In the early 1950s, Ronald Reagan’s movie career was not going all that well. Yes, he was a well-known screen actor, but not quite a top leading man. As president of the Screen Actors Guild, the actors union, he had certainly honed his political skills behind the scenes, but that had done nothing to advance his presence on the silver screen. He and his wife Nancy had a baby at home, but no scripts or paychecks were coming into the house. Finally, his agent landed him a job at the Last Frontier Hotel in Las Vegas, doing stand-up comedy and opening for a singing group called the Continentals. Though Reagan protested that he neither sang nor danced, the money was good, and the two-week show was sold out, but he found the work boring, and he and Nancy had no interest in the gaming tables. This was not why he had become an actor.

  Then his agent called with a more interesting offer: to host a proposed television series called GE Theater and become the roving ambassador for General Electric. The pay was very good—$125,000 a year ($1 million in today’s money). He took it. Over the next eight years he spent a great deal of time on the road—the equivalent of two years—visiting 135 GE plants around the country, giving speeches, and meeting 250,000 GE workers. The time away from home was lengthened by his contract, which permitted him to avoid airplanes and crisscross the country only by train and car because of his fear of flying. (As he wrote to a friend in 1955, “I am one of those prehistoric people who won’t fly.”) In the course of those years on the road for GE, he developed “the speech”—the thematic amalgam of patriotism, American values, criticism of big government and regulation, and anecdotes and affable good humor—that would launch him into the governorship of California and then onto the presidency. But that was all in the future. In the meantime, GE Theater, with Ronald Reagan at the helm, became one of the top-rated shows on Sunday night.26

  General Electric also turned the Reagan home in the Pacific Palisades section of Los Angeles into a stunning showcase for the all-electric home—“the most electric house in the country,” Reagan called it. “We found ourselves with more refrigerators, ovens and fancy lights than we could use,” Nancy Reagan said. GE kept finding new appliances to deliver—a color television, a refrigerated wine cellar, and an amazing new innovation, an electric garbage disposal. So great was the extra electric load that it had to be accommodated with additional wiring and a three-thousand-pound steel cabinet on the side of the house. Reagan would joke that they had a direct electric line to Hoover Dam.27

  And so, long before Ronald Reagan became the fortieth president of the United States and the global proponent for freedom and free markets, he already became the fervent advocate for the “all-electric home.” In a series of television commercials, he and Nancy invited viewers into their all-electric home, where they extolled many of their GE appliances, ranging from a toaster oven to a vacuum cleaner to a waffle iron to a portable television that they proudly carried onto their patio and out by the pool.

  “My electric servants do everything,” said Nancy Reagan, as her husband savored the coffee from an electric coffee maker.

  “That’s the point of living better electrically,” replied a beaming Reagan.

  After giving their young daughter, Patti, a tour around the house, and letting her identify all their household appliances, Nancy Reagan said, “It makes quite a difference in how we live.”

  To those who had lived through the deprivation of the Depression in America’s cities and on its farms, the electric home and those “electric servants” truly did mean a veritable revolution in the quality and ease of domestic life. With what was already that characteristically affable shake of his head, Reagan summed it up, “You really begin to live when you live better . . .” And then his daughter jumped in to enthusiastically add, “Electrically!”28

  Here it was—the American Dream and what would become a dream around the world—all electric. Or, at least, increasingly electric. Living better electrically was reflected in the rapid growth in the nation’s consumption of electricity. But how to generate the electricity to meet the nation’s growing demands for power?

  18

  THE NUCLEAR CYCLE

  It was an odd location for a president-elect to be briefed on the most dire threat facing the world. But the small office belonging to the club manager was the only place readily available at the Augusta National Golf Club in Georgia, where Dwight Eisenhower was on a golfing vacation after his electoral victory in 1952.

  What Eisenhower learned that morning was very sobering. The subject was the growing risk of nuclear war.

  Seven years earlier, two atomic bombs detonated over the Japanese cities of Hiroshima and Nagasaki had brought the Second World War to a sudden conclusion. In the immediate postwar years, the United States, with its ally Britain, held what seemed to be an atomic monopoly. But then in 1949, in what was a stunning shock, the Soviet Union, abetted by a network of spy rings, tested its first atomic bomb well ahead of what was anticipated.1

  That November morning in 1952, Eisenhower began by asking the briefer, a senior official from the Atomic Energy Commission, about the pluses and minuses of combining in a single facility the generation of civilian nuclear electricity with the production of weapons-grade fuel. Then, getting down to the immediate business at hand, the briefer pulled the top-secret documents from an oversize envelope. The topic, on which the new president needed to be urgently informed, was the state of the nuclear arsenal and the fearsome rate at which destructive power was growing.

  A little more than a week earlier, the United States had tested “Mike”—“the first full-scale thermonuclear device,” said one of the documents—the prototype of a far more powerful hydrogen bomb, 150 times more powerful than the atomic bomb. The Pacific island on which “Mike” had been tested was now, in the stark words of the document, “missing,” replaced by an underwater crater almost a mile in diameter. Eisenhower instantly absorbed the significance. There was now, he said, “enough destructive power to destroy everything.” He worried about the dangerous temptation to think that such weapons “could be used like other weapons.”

  After the meeting, the first thing that the briefer did, even before getting back on the plane, was to burn the secret documents.2

  The dangers of nuclear conflict would deeply preoccupy Eisenhower throughout his presidency. He had been Supreme Co
mmander in Europe during World War II, and he knew that the U.S. nuclear arsenal was already several times more destructive than all the munitions exploded during the war. The Russians were headed down the same path.

  Was there not some way to temper the arms race and move the “atom” onto a more peaceful path? The death of Joseph Stalin in March 1953 held out that prospect, possibly. But then in August 1953, a Soviet weapon test—nicknamed “Joe 4”—set off new alarms, since it seemed to indicate that the Soviet Union was also far along in developing a hydrogen bomb. There was much discussion in the U.S. government about how to slow down the arms race, including a set of proposals code-named “Project Wheaties” and the seemingly endless redrafting of a major presidential address for the United Nations on the nuclear danger. “We don’t want to scare the country to death,” Eisenhower instructed his speechwriter. But he was determined to take the initiative. “The world is racing towards catastrophe,” he wrote in his diary. “Something must be done to put a brake on this movement.” At the same time, as the Atomic Energy Commission put it in a memo to the president, achieving “economically competitive nuclear power” was “a goal of national importance.”