Electricity and the role of the state: New Zealand and Uruguay before state-led development (1870-1930)

The configuration of a “modern” production structure requires there to be sufficient energy supply at competitive costs to justify exploiting the corresponding natural resources. New Zealand’s better economic performance, since the last third of the 19th century in coal production and better natural conditions to generate electric energy at low cost –thus offering energy at low prices– explain, at least partially, the differences with respect to Uruguay. New Zealand's advantage in energy endowments facilitated the development of a dairy sector, certain energy-intensive manufactures and a more efficient use of railways that reinforced the differences between the two economies. However, endowments are not the complete story and the institutional arrangements are another relevant factor of differentiation. Our argument is based on the concept of endogeneity of natural resources and we use it to prove the hugely different roles of states in the creation and management of the electricity systems. These differences were not related to the extent of state intervention but to the achievements of such action. This action aimed at improving the welfare conditions in the case of Uruguay without paying enough attention to those aspects related to the production conditions; instead, in New Zealand, the productive development was the focus of the public intervention. The result was the creation of differential production conditions that explain the long-run divergent economic performance in terms of sector diversification and international competitiveness in favour of New Zealand.