Free Enterprise in Mexico

Foreign-owned public utilities in Latin America are a chosen prey of nationalizers and a favorite target of Communists. For their troubles most of them earn slim profits. Returns average only 3% a year on investment, compared to 9% for manufacturers and about 20% for oil producers. But now Mexico has launched a new policy to give utilities a break. Reversing the long anti-utility trend, President Adolfo Ruiz Cortines wants to encourage foreign-owned utilities to expand as part of a $500 million plan to treble power production and make private enterprise an equal partner in meeting the nation's needs. Said President Ruiz Cortines: "The objective of the government . . . is clear: to complement, advise and stimulate enterprise, not to supplant it." As a stimulating start, Mexico offered utilities more government loans, help in getting U.S. Export-Import and World Bank loans and--most welcome of all--rate boosts.

Falling Peso. The new plan grew out of Mexico's desperate need for utility expansion. A year ago, the entire nation generated much less power than Chicago.

Mexican Light & Power (incorporated in Canada) supplied the industrial area around Mexico City with 2.1 billion kw-h yearly; U.S.-controlled American & Foreign Power Co. generated 1 billion kw-h for eleven outlying states; the government fed 1.5 billion kw-h into distributing companies. But the power plants could barely keep up with rising consumer demand, and industrial power was short.

Low rates had long discouraged utilities from expanding. When MexLight began in 1903, it put up dollars and expected dividends in the same coin. But it had to collect revenues in pesos, and the peso, worth about a dollar then, brings only 8-c- now. The government balked at letting utility rates rise as fast as the peso fell, thus profits sank lower and lower in dollars.

Low dividends--or no dividends--killed sales of stock in the U.S. and elsewhere. And Mexican investors showed no interest. Lacking new capital, the companies could not keep up with consumer demand, even when they plowed back profits and got bank loans.

Rising Rates. Now that the Mexican government has had a change of heart toward utilities, some of the results are already in. Mexican Light, given a 21% rate rise and promised another increase later, paid its first common-stock dividends in 41 years. Last week it confidently put $2,000,000 worth of securities on the market; the company expects eventually to attract enough private capital--together with public loans and earnings--to finance a $200 million, ten-year expansion plan. American & Foreign Power, promised a rate increase soon, plans a $40 million, five-year building program, using public and private capital. The telephone company got a 45% increase, plus a government loan, and will spend $15 million filling back orders. cattle instead of putting the cattle out to pasture."

Few farm jobs have defeated mechanization. Peanuts and sugar cane are now mechanically harvested; there is even a machine to pull, top and load sugar beets. Some 60% of the plow market has shifted from two-bottom to three-bottom plows, which plow three furrows at a clip. Before World War II, a two-row cultivator was considered big; now the large size is four-row. One enterprising Iowa farmer has even welded together enough equipment to make himself an eight-row planter, thus spanning twelve acres an hour at 4 m.p.h. International Harvester has a new Electrall tractor with an electric generator that can power attachments to do any job from boring post holes to shearing sheep. If a storm knocks out farm power lines, it can be hooked into the household circuits.

Swathers & Wonsovers. Still other new machines are in the works. The Owatonna Tool Co. is building a self-propelled hay "swather" to take the place of the standard 7-ft. mower. Twelve feet across, it will slice through fields, cut and pile the hay in rows in a single operation, thus displacing (with a single operator) two men and three tractors, two mowers and a pair of hay rakes. Ford is working on a low-cost combine for medium-sized farms, a new corn picker that can be attached to the front of a standard four-wheeled tractor. Another new development: a machine called the Wonsover, which a Maine inventor named Herman Cohen will soon put into production. It was developed with the help of several companies (among them: U.S. Steel, Caterpillar Tractor, General Electric). Weighing ten tons, the Wonsover spans 240 sq. ft. of earth while a battery of hammers pulverizes the ground at the rate of 50,000 strokes a minute; other attachments mix fertilizer and lime, plant seed, cover and fumigate the soil against insects, all in a single operation. Even in brush-covered territory, says Cohen, the Wonsover can plant 70 acres in 24 hours v. 460 hours for conventional tractors, plows and seeders.

Where Will It End? With newer and more efficient machines, the industry expects the boom to go on and on. Replacement sales will be enormous. On tractors alone, replacements average 10% of the total each year, by 1960 will hit 450,000 units annually. Says Oliver's President A. King McCord: "We believe that 1960 could be the biggest year of this industry just on replacement alone." Beyond that, the world's food requirements are growing with the fast increase in population. Says Ford Vice President Irving A. Duffy, chief of the farm division: "By 1975, our population is expected to reach about 200 million. That means we must feed 35 to 40 million extra stomachs. It means we'll need meat from 10 million more cattle and calves, 20 million extra hogs, 3,500,000 more sheep and lambs, milk from 6,000,000 more dairy cows, eggs from 87 million more hens. To do the job, the farmer will need more machines."

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