Número 19 / ABRIL, 2023 (199-216)
THE HISTORY OF THE ECUADORIAN CORPORATION
AND ITS CONTRIBUTION TO THE ECONOMIC
DEVELOPMENT OF ECUADOR: 1897-1986
LA HISTORIA DE LA ECUADORIAN CORPORATION Y SU
CONTRIBUCION AL DESARROLLO ECONOMICO DEL
ECUADOR;1897- 1986
DOI:
Artículo de Revisión
Recibido: (10/05/2022)
Aceptado: (22/08/2022)
https://doi.org/10.37135/chk.002.19.12
Willamette University, Spanish Department, Salem,
Oregon, USA
juggen@willamette.edu
John F. Uggen
THE HISTORY OF THE ECUADORIAN CORPORATION AND ITS CONTRIBUTION
TO THE ECONOMIC DEVELOPMENT OF ECUADOR: 1897-1986
Número 19 / ABRIL, 2023 (19-37) 200
THE HISTORY OF THE ECUADORIAN CORPORATION
AND ITS CONTRIBUTION TO THE ECONOMIC
DEVELOPMENT OF ECUADOR: 1897-1986
LA HISTORIA DE LA ECUADORIAN CORPORATION Y SU
CONTRIBUCION AL DESARROLLO ECONOMICO DEL
ECUADOR;1897- 1986
While much has been written about the construction of the Guayaquil and Quito
railroad, little has been written about the important connection between the subsidiary
companies organized by the railroad and the development of the Ecuadorian Corporation,
the rst modern holding company to be organized in Ecuador. The objective of this article
is to present the history of the Ecuadorian Corporation from its beginnings in 1897 with the
organization of the Guayaquil and Quito Railway Company to its dissolution in 1986 as a
result of a hostile take over by the Rooney Pace corporation. In exploring the connection
between the railway company and the Ecuadorian Corporation, emphasis has been placed
on the roles of Archer Harman, the promoter of the railway company and its subsidiaries,
Evermont Hope Norton, the founder of the Ecuadorian Corporation, and Hope Norton
Stevens, his grandson and successor. The methodology for this article was based on
an analysis of the unpublished primary sources of the Guayaquil and Quito Railway
Company and its subsidiaries and of the Ecuadorian Corporation. The article concludes
with an analysis of the important contribution made by the Ecuadorian Corporation to the
economic development of Ecuador.
KEYWORDS: Ecuadorian Corporation, Norlin Corporation, Archer Harman, Evermont
Hope Norton, Guayaquil and Quito Railroad
Mientras mucho ha sido escrito sobre la construcción de la Guayaquil y Quito Railroad,
poco ha sido escrito sobre la importante conexión entre las compañías subsidiarias
organizadas por el ferrocarril y el desarrollo de la Ecuadorian Corporation, la primera
compañía conglomerada (holding) a ser organizada en el Ecuador. El objetivo de este
artículo es presentar la historia de la Ecuadorian Corporation desde sus orígenes en
1897 con la organización de la Guayaquil and Quito Railway Company y su liquidación
en 1986 como resultado de una adquisición hostil por la corporación Rooney Pace. Al
explorar la conexión entre la compañía del ferrocarril y la Ecuadorian Corporation, se ha
puesto énfasis en los papeles de Archer Harman, el promotor de la compañía del ferrocarril
y sus subsidiarias, Evermont Hope Norton, el fundador de la Ecuadorian Corporation, y
Hope Norton Stevens, su nieto y sucesor. La metodología para este artículo se basó en el
análisis de las fuentes primarias de la compañía del ferrocarril y sus subsidiarias y de la
Ecuadorian Corporation. El presente artículo concluye con el análisis de la importante
contribución de la Ecuadorian Corporation al desarrollo económico del Ecuador.
PALABRAS CLAVE: Ecuadorian Corporation, Norlin Corporation, Archer Harman,
Evermont Hope Norton, Ferrocarril Guayaquil y Quito
ABSTRACT
RESUMEN
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 201
INTRODUCTION
The discipline of business history is still a
relatively new eld in Ecuadorian historiography.
While separate studies of the electric power
industry in Quito (Núñez and Londoño 2005),
the beer industry in Guayaquil (Estrada 2005),
foreign companies (Albornoz 2001) and general
business histories (Navarro 1976) and (Fierro
1991) have been published, there is still much
to be done on the history of individual rms in
Ecuador.
A particular case in point is that of the Ecuadorian
Corporation, founded in 1913 as a holding
company for the subsidiary companies originally
developed by the Guayaquil and Quito Railway
company. In the histories of the Guayaquil
and Quito Railroad, little mention is made of
the important role that the railroad played in
developing the Ecuadorian Corporation, the rst
modern holding company (conglomerate), to be
established in Ecuador. The purpose of this paper
is to present a history of this connection between
the Guayaquil and Quito Railway company and
the Ecuadorian Corporation.
The theoretical framework for this paper is based
on the book The Visible Hand: the Managerial
Revolution in American Busines (1977) by
Alfred D. Chandler, Jr., the Pulitzer Prize-
winning professor of business history at Harvard
University. According to Chandler the railroads
were the rst truly modern business enterprises
and the managerial and technological innovations
they developed created the framework for the
emergence of the modern business corporation.
Chandler’s theory of the connection between the
railroads and the modern business corporation
is particularly relevant to Ecuador, where the
Guayaquil and Quito Railway company and
the Ecuadorian Corporation made important
contributions to the capitalist modernization of
the country. Reference will be made in the course
of this paper to the managerial and technological
innovations identied by Chandler which
are relevant to the process of capitalist
modernization of Ecuador, in particular in
the areas of administrative structure, nance,
construction and the development of the holding
company and its subsidiaries.
ELOY ALFARO AND THE
LIBERAL REVOLUTION OF 1895
The triumph of General Eloy Alfaro’s Liberal
Revolution on June 5, 1895, ushered in a period
of radical social and political transformation in
Ecuador. The revolutionary period (1895-1912)
represented the political triumph of the bourgeois
agro-export oligarchy of coastal Ecuador over
the conservative highland landlords and the
Catholic Church. The principal liberal goals
were the secularization of the state, freedom
of religion, the elimination of the inuence of
the Catholic Church in politics and education
and the capitalist modernization of the country
to attract foreign investment in industry and
infrastructure (Ayala, 1983:120).
Alfaro’s top priority was the completion of
the railroad from Guayaquil to Quito, the obra
redentora, or redemptive work, that in the words
of Manuel Chiriboga (1983), constituted the “eje
central de la acción estatal en la época liberal.
La vinculación regular entre Quito y Guayaquil
que uniría todo el país, constituyó la clave de
la política modernizadora del Liberalismo”
(Chiriboga 1983:96).
For Enrique Ayala (1983) the construction
of the Ferrocarril Trasandino should be
considered the main accomplishment of Alfaro’s
two administrations. One of the main obstacles
to the completion of the railroad was the
English debt that Ecuador incurred during the
wars of independence from Spain. Ecuador had
defaulted on the debt and until an arrangement
could be made with the English bondholders,
it was impossible to arrange a foreign loan to
nance the construction of the road.
THE HISTORY OF THE ECUADORIAN CORPORATION AND ITS CONTRIBUTION
TO THE ECONOMIC DEVELOPMENT OF ECUADOR: 1897-1986
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It was Alfaro’s belief that the railroad could only
be built by American engineers and nanced by
American capital. By 1895 the United States had
the largest railway network in the world and the
city of New York rivalled London as a nancial
center. In the fall of 1896 Alfaro commissioned
Ecuador’s representative in Washington, Luis
Felipe Carbo, to interest New York capitalists
in nancing and building the road. According to
Evermont Hope Norton (cited in Stevens, 1957)
a syndicate of 12 New York capitalists was
organized in January of 1897. Each member of the
syndicate contributed $500 to pay the expenses
of Archer Harman, who was selected to secure
the concession from the government of Ecuador.
METHODOLOGY
The objective of this essay is to demonstrate the
connection between the Guayaquil and Quito
Railway Company and the development of
the Ecuadorian Corporation, the rst holding
company (conglomerate) established in Ecuador.
The study covers a period of 89 years, from the
founding of the Guayaquil and Quito Railway
Company in 1897 to the dissolution of the
Ecuadorian Corporation in 1986.
The methodology for the present article is a
revue of the primary documental sources on the
railway company and its subsidiary companies
and the Ecuadorian Corporation. The documental
research was conducted in the National Archives
of the United States in Maryland, the Archivo
Nacional de Historia in Quito and the National
Archives of Great Britain and Scotland in the
following sequence: The primary documental
source for the founding of the Guayaquil and
Quito Railway Company was obtained from
File 422.11/G93 in the National Archives in
Maryland.
The documentation on the subsidiary companies
of the railroad was obtained from the notarial
records in the Archivo Nacional de Historia
in Quito. The research on the founding of
the Ecuadorian Corporation was carried out
in the National Archives of Great Britain. A
nal trip to the archives of Scotland resulted
in the discovery of the original records of the
Ecuadorian Association, which helped nance
the construction of the Guayaquil and Quito
railroad.
The theoretical framework for this paper is
based on the book The Visible Hand: the
Managerial Revolution in American Business
(1977) by Alfred D. Chandler, Jr. who dened
the modern business enterprise as having “two
specic characteristics: it contains many distinct
operating units and is managed by a hierarchy of
salaried executives” (Chandler 1977:1).
This management structure was originally
developed by the railroads and adopted by
the modern business enterprise “to monitor
and coordinate the work of the units under its
control” (Chandler 1977:3). The Guayaquil
and Quito Railway company was the rst
to introduce this management structure in
Ecuador and its eventual adoption by other
Ecuadorian businesses represents the railroad’s
major contribution to the process of capitalist
modernization in Ecuador.
Management by a hierarchy of salaried
executives also made possible the development
of the holding company, which allowed
individual companies to hold stock in other
companies, which was the “rst essential
step in the transformation (…) to the modern
industrial enterprise” (Chandler 1977:320). The
Guayaquil and Quito Railway company and its
successor the Ecuadorian Corporation were the
rst holding companies established in Ecuador.
Based on Chandler’s criteria outlined above, the
railroad and the Ecuadorian Corporation must be
considered the rst modern business enterprises
to be developed in Ecuador.
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 203
RESULTS AND DISCUSSION
PART ONE: ARCHER HARMAN:
PROMOTER OF THE GUAYAQUIL
AND QUITO RAILWAY AND ITS
SUBSIDIARIES, 1897 - 1911
Archer Harman (1859-1911) was a man with
a wide variety of business experiences before
going to Ecuador. As a young man he had
worked as a railroad subcontractor in the states
of Virginia, Kentucky, Ohio and Indiana and
with a partner built a section of the Colorado
Midland Railroad. Harman then moved to
Louisville, Kentucky where he worked as a
paving contractor and prospected for petroleum.
He also speculated in urban real estate and
lost a multi-millions dollar law suit in a land
speculation deal in eastern Kentucky coal lands.
He then moved to Jacksonville, Florida, where
he lost out in a ght for control of a short line
railroad between the city of Jacksonville and
seaport town of Mayport. Harman then partnered
with Edward Morley, who later accompanied
him to Ecuador, in a venture to establish a ferry
service between the town of Key West and the
city of Miami.
To nance this venture Harman engaged in
a libustering expedition to run guns and
ammunition to the rebels ghting against
Spanish rule in Cuba (Washington Evening Star
1896). Harman’s ship, the City of Richmond,
was impounded by the US government and
later sold to Henry Flagler, the former partner
of John D. Rockefeller. Harman then moved to
New York city, where he was invited to join the
Ecuador syndicate.
When Harman arrived in Ecuador in March of
1897, Ecuador was in the middle of a period of
unprecedented economic prosperity fueled by
the so-called auge cacaotero, or cacao boom.
Revenue from customs duties and internal taxes
increased 2.8 times, from S/.6,932,708 in 1897
to S/.19,545,952 in 1913, the year the Ecuadorian
Corporation was founded (Ayala, 1893).
During the same 17 years period cacao
production doubled from 358,198 quintals in
1897 to 722,332 quintals in 1913 (Rodríguez,
1992). The future economic prospects of the
country looked promising and Harman believed
that Ecuador had the resources to pay the interest
on the railroad bonds to nance the construction.
After intense negotiations the government of
Ecuador awarded the concession to Harman and
the syndicate on June 14, 1897.
According to Chandler, the heavy capital
requirements of railroad construction led to the
development of innovative nancial instruments,
the most important of which were rst mortgage
bonds and debenture bonds, which were the
most common forms of railroad nancing in the
United States. Both of these instruments were
used to nance the construction of the railroad
in Ecuador.
The cost of construction was estimated by
the syndicate at $17,532,000 in US dollars:
$12,282,000 in rst mortgage bonds and
$5,250,000 in preferred stock to be issued to the
syndicate as their payment for assuming the risk
of construction. The concession contract called
for a further issue of $7,032,000 of common
stock to be divided 49% to the government of
Ecuador and 51% to the syndicate, which gave
the syndicate the controlling interest in the
ownership of the railroad.
But unlike in the United States, where the railroads
were privately owned and the interest on the
bonds was to be paid for out of earnings of the
railroad, the 1897 concession contract obligated
the government of Ecuador to guarantee both
interest and principal on the bonds. This would
become a source of major conict between the
company and the government over ownership
of the railroad, resulting in the government’s
eventual default on the railroad debt.
According to Deler, the cost of construction was
“almost two times the equivalent of the annual
expenses of the government at the beginning
of the 1890s and six to seven times the average
THE HISTORY OF THE ECUADORIAN CORPORATION AND ITS CONTRIBUTION
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annual amount of custom’s revenues” (Deler
1994:329). The $5,250,000 in preferred stock
and the $3,586,320 common stock issued to
the syndicate raised the capitalization of the
railroad company to $ 8,836,320 US dollars,
the equivalent in sucres of S/.17,761,032 at the
exchange rate of 2.01 sucres per US dollar. The
$12,282,000 bonded debt of the railroad was
the equivalent of S/24,686, 820. For the sake
of comparison, the total capital in circulation
in Guayaquil county in 1909 was S/.42,302,17
(Compañía Guía del Ecuador, 1909).
Upon his return to New York Harman reported
to the syndicate that the cost of construction was
only $5,000,000, a gross miscalculation of the
true cost of road (Harman,1897). On September
1, 1897 the Guayaquil and Quito Railroad
was incorporated in the state of New Jersey.
The subscribers were the following:
Table 1: Incorporators of the Guayaquil and
Quito Railway Company
Source: Certicate of Incorporation of the
Guayaquil and Quito Railway Company,
1September, 1897, State of New Jersey.
Elaborated by Author.
According to Chandler, “legal innovations
accompanied nancial innovation. To insure
legal control over their many properties
the railroads perfected the modern holding
company” (Chandler (1977). But holding
companies for manufacturing companies were
illegal until 1889, when the state of New Jersey
promulgated a holding company law which
permitted manufacturing companies to purchase
and hold stock in other business enterprises
(Chandler, 1977).
The Guayaquil and Quito Railway company was
incorporated in New Jersey precisely because
of the holding company law and the minimal
capitalization requirements for incorporation.
From the beginning the Guayaquil and Quito
Railway company was interested in much more
than just building a railroad, as will be shown
in the development of the railroad’s subsidiary
companies.
Immediately after incorporating the Guayaquil
and Quito Railroad Company Harman left for
London to negotiate the purchase of Ecuador’s
foreign debt with the Corporation of Foreign
Bondholders. A second purpose of Harman’s
trip was to secure an underwriter for the rst
mortgage bonds and place the bonds on the
London market. He also presented his project
to Lord Revelstoke, the head of Baring Brothers
bank, who rejected his proposal. (Baring
Archive, 1897- 1898). Harman also failed to
place any of the rst mortgage bonds on the
London bond market.
THE SOUTH AMERICAN RAILWAY
CONSTRUCTION COMPANY
(SARCCO)
On his return to New York Harman organized
the South American Railway Construction
Company with a minimum capitalization of
$1,000. The subscribers were four members of
the original syndicate plus Charles H. Sherrill,
a New York lawyer who also drafted the articles
of incorporation of the Ecuadorian Association.
Article 34 of the 1897 concession allowed the
railroad to assign the actual construction to a
separate construction company which could in
turn subcontract the work.
Two days later, on February 10, 1898 the
Guayaquil and Quito Railway company signed
a contract with the South American Railway
Construction Company to construct the railroad
for $4,050,000. A week later the South American
Railway Construction oered $4,000,000 to
the Drake and Stratton construction company
to build the road—a million dollars less than
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 205
the estimate Harman made in his report to the
syndicate, eight million dollars less than the
estimated $12,282,000 in rst mortgage bonds
that the government of Ecuador had agreed to
nance! (Cooper-Hewitt, 1898) The contract
with Drake and Straton was signed on March
12, 1898.
Drake and Stratton sent their chief construction
engineer George L. Riley to Ecuador in June of
1898 to make a preliminary survey of the line.
Riley then cabled that all nancial arrangements
to construct the line had been nalized. But
opposition to the Harman contract had been
growingin Ecuador and in September of
1898 congress voted to rescind the Harman
concession and Drake and Stratton backed out
of their contract (Grito del Pueblo, September
14, 1897).
THE ECUADOR DEVELOPMENT
COMPANY
The only funds SARCCO had available beyond
the initial capitalization of $1,000 were $650,000
in rst mortgage bonds and the $650,000 in
preferred stock promised to them, but not yet
issued by the Government of Ecuador. Of this
amount Harman was to receive $250,000 in
bonds and another $250,000 in preferred stock
as his commission for obtaining the concession.
Harman returned to London in the summer of
1898 in search of British capitalists to invest
in the South American Railway Construction
company. While in London Harman made the
acquaintance of St. George Lane Fox Pitt,
the brother-in-law of Sir John Lubbock, the
chairman of the Council of Foreign Bondholders.
According to this author (Uggen 2008), Harman
was so impressed with Fox Pitt’s aristocratic
connections that he sold one half of his interest
in the South American Railway Construction
Company to Fox Pitt with the condition that
Fox Pitt would organize a syndicate in Great
Britain to nance the construction in Ecuador.
Harman returned to New York in August of 1898
accompanied by Fox Pitt.
On September 16, 1898 Harman, Fox Pitt,
Evermont Hope Norton and Thomas Carmichael,
the New York representative of the London
banking rm of Dent, Palmer and Co. organized
the Ecuador Development Company. Dent,
Palmer then agreed to underwrite the construction
of the road in return for a controlling interest in
the company. The Development Company was
organized with an authorized capital of only
$200,000. The initial subscription was $161,600,
of which Dent, Palmer subscribed $73,900 or
47%, giving them a controlling interest in the
company.
In August of 1898 the Congress of Ecuador
repudiated the 1897 contract with Harman and
the Syndicate. According to General Alfaro
the 1898 Congress repudiated the Harman
contract because it was dominated by enemies
of the liberal revolution. But as this article will
demonstrate, the Congress had good reason to
question the terms of the 1897 concession.
Upon hearing the news of the repudiation of the
concession, Harman departed immediately for
Ecuador in the company of Fox Pitt and George
Mumford, the lawyer for the New York oce of
Dent Palmer and Co. While in Quito Harman had
a falling out with Fox Pitt and Mumford over the
amendment of Article 6 of the 1897 concession,
which stipulated that the company woud be paid
for construction work at the beginning of each
mile. But the congress of 1898 modied Article
6 so that the company would only be paid for
work completed in the previous month, forcing
the company to pay for construction from its
own funds.
According to Fox Pitt, “Harman was totally
opposed to this change in the 1898 contract but
Mumford, as the lawyer for the Development
Company, accepted it without Harman’s
authorization.” (Uggen 2008). Upon their return
to New York Mumford gave an unfavorable
report on Harman to Thomas Carmichael,
which resulted in Dent, Palmer’s withdrawal
from the Development company. After Dent,
Palmer’s withdrawal, Harman was once again
without funds to nance the construction of the
road. Harman then made an arrangement with
Evermont Hope Norton to buy out Dent Palmer’s
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interest in the Development company and
transfer the control to the American investors.
THE ECUADORIAN ASSOCIATION
Harman returned to London again in the winter
of 1899 where he made the acquaintance of Sir
James Sivewright, a wealthy Scotsman who had
made his fortune in South Africa. On April 4,
1899 Harman and Sivewright incorporated the
Ecuadorian Association in Edinburgh with an
initial capitalization of £70,000 pounds. Article
1 of the Memorandum of Association (1899)
makes clear that the intentions of the Ecuadorian
Association went far beyond that of building the
railroad:
To take, purchase, underwrite, or
otherwise acquire and hold any bonds,
stocks, obligations and securities of
any governments, states, or authorities,
supreme, municipal, local or otherwise,
and any bonds, debenture stocks, scrip,
obligations, shares, stocks, options or other
interests, in any trading or manufacturing
companies, or companies established for
the purposes of any railway, tramway,
railway or tramway construction, gas,
water, dock, shipping, telegraph, or other
undertaking of public utility. (Ecuadorian
Association Ltd. 1899:6)
On September 6, 1900 Harman and Norton
transferred the Ecuadorian Development
Company stock, the construction contract, and
all the rst mortgage bonds and the preferred
stock, to the Ecuadorian Association. The
stockholders of the Ecuador Development
company then exchanged their shares for shares
in the Ecuadorian Association.
On June 15, 1900, the Ecuadorian Association
assigned the construction contract to the James
P. McDonald company of Knoxville, Tennessee,
one of the most experienced railroad contracting
rms in the United States. The McDonald
company was given the section between Chimbo
and Alausí, the most dicult and challenging
section of the whole line.
On June 8, 1901 the Ecuadorian Association
oated an issue of £1,000,000 of 6% Debenture
Bonds to raise the capital to nish the line to Quito
(New York Times [NYT], 1901). According to
Harman, the high cost of construction around
the Devil’s Nose resulted in the bankruptcy of
the Ecuadorian Association and the dismissal of
the McDonald company.
In March of 1904 Archer Harman and his
associates, voted to liquidate the Association
over the protest of the minority shareholders.
To counter their opposition, the minority
shareholders were oered the opportunity to
exchange their shares in the Association for
shares in the Guayaquil and Quito Railway
company at the rate of 40% in preferred stock and
60% common stock in the railroad in exchange
for every share issued by the Ecuadorian
Association.
THE INCA COMPANY
After the Ecuadorian Association was liquidated,
Harman organized the Inca Company, with an
authorized capital of $150,000 divided into
150 shares of $1,000 each, 149 of which were
subscribed by Archer Harman personally (Inca
Company Articles of Incorporation, 1904). The
Guayaquil and Quito Railroad then assigned
the construction contract to the Inca Company,
which included the rights to $3,010,000 First
Mortgage Bonds and $2,100,000 shares of
Preferred Stock for a total compensation of
$5,110,000, making the Inca Company (i.e.
Archer Harman) the owner of the Guayaquil and
Quito Railway Company.
The Inca Company took charge of the
construction from the Laguna de Colta to Quito
and nished the construction by administration,
which meant that construction was carried out
by the railroad company and not by the Inca
company itself, which was merely a holding
company for the stocks and bonds of Archer
Harman. This led to a huge conict between the
company and the government, as the railroad
charged construction expenses to the operating
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 207
account, which meant that revenue from
operations, that should have been used to pay
interest on the bonds, was being used to nish
the construction.
Harman claimed that three of the four
construction companies were wrecked in the
construction of the railroad. This author would
argue, on the other hand, that the formation of
the separate construction companies were part
of an elaborate pyramiding scheme engineered
by Harman to transfer the ownership of the
railroad to himself.
THE SUBSIDIARY COMPANIES
OF THE GUAYAQUIL AND QUITO
RAILWAY
Once the rails had reached Guamote, Harman
dedicated his time to organizing subsidiary
companies to increase the railroad’s earnings.
Between 1905 and 1910 Harman organized the
following subsidiary companies:
Table 2: Subsidiary Companies of the
Guayaquil and Quito Railway Company
Source: Archivo Nacional de Historia,
Artículos de Incorporación. Elaborated by the
Author.
ANGLO FRENCH PACIFIC
SYNDICATE
On May 26, 1905 Archer Harman organized
in London the Anglo French Pacic Syndicate
to purchase 28 acres of prime real estate north
of the Ejido Park in Quito. The syndicate
contracted Modesto Sánchez Carbo, the manager
of the Quito branch of the Banco Comercial y
Agrícola to purchase the lands in his name and
then transfer the title to the syndicate. Sánchez
Carbo was given S/.125,062 by Archer Harman
to purchase seven properties between October
23 and November 24 1905.
The syndicate formed the Ciudadela del
Centenario in anticipation of the 100 years
celebration of Ecuador’s independence from
Spain in 1824. On June 1, 1910 the Anglo French
Syndicate was liquidated and title to its lands in
Quito transferred to the Farms company, a new
real estate holding company to hold the title to all
of the lands owned by the subsidiary companies
of the railroad in Quito and Duran. On March
20, 1920 the Junta del Centenario approved the
plans for the urbanization of the Ciudadela del
Centenario.
The Farms company then sold the entire
property two years later to the Empresa de
Mejoras Urbanas of Guayaquil for the sum of
S/.450,000. The Empresa de Mejoras Urbanas
changed the name to Ciudadela Mariscal Sucre
and developed the site which was to become
Quito’s modern business district. The Farms
retained the title to the 8,000 acre El Recreo
property which surrounded the city of Duran.
QUITO ELECTRIC LIGHT AND
POWER COMPANY
On November 5, 1905 Harman and Norton
organized the Quito Electric Light and Power
Company in New Jersey and purchased a
controlling interest in La Eléctrica, a small
power plant built in 1897 by Manuel Jijón
Larrea, Víctor Gangotena Jijón y Francisco Joé
Urrutia on the falls of the Machángara river. The
Ecuadorian owners of La Eléctrica had run out
of funds and needed fresh capital to expand the
plant. The railroad interests supplied the capital
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and service to Quito was inaugurated on October
8, 1908, only three months after the arrival of
the railroad to Quito (El Comercio 1908).
QUITO TRAMWAYS COMPANY
On November 14, 1905 Harman and Norton
organized the Quito Tramways company in the
state of Delaware and were awarded the franchise
to establish tramways service on November
19, 1910. Tramways service was inaugurated
on October 8, 1914 to provide transportation
from the railroad station in Chimbacalle all the
way to the new Avenida Colón, the northern
boundary of the tract of land owned by the
Anglo French Pacic Syndicate, today Barrio
Mariscal Sucre. Unfortunately for the historian,
the records of the Quito Tramways company,
which were stored in the brewery in Guayaquil,
disappeared when la Cervecería Nacional was
sold to the Colombian conglomerate Bavaria
(Personal communication Jenny Estrada 2004).
THE RECREO COMPANY AND THE
NEW GUAYAQUIL LAND COMPANY
On December 5, 1905 Harman organized the
Recreo Company in New York to purchase the
8,000 acre Recreo Hacienda from Belisario J.
Luque for S/.150,000 ($70,000 in US dollars).
The lands of El Recreo surrounded the city of
Duran and the land on which the terminal of the
railroad was located. Four years later (January 1,
1909) title to the Recreo hacienda was transferred
to the New Guayaquil Land Company. Harman’s
plan was to develope the Recreo estate and build
a “new Guayaquil” to rival the “old Guayaquil”
which had been destroyed by the 1896 re.
To raise the capital to develop the estate Harman
travelled to Paris where he interested a large
number of small French investors in the project.
When the plan failed, the railroad company
retained title to the property. The French
investors sued Harman in New York and won
a judgement of $22,643 against Harman and
the railroad (NY Times 1909). But they lost
in the Ecuadorian courts and title to El Recreo
was retained by the railroad. In recompense the
French investors were oered the opportunity
to exchange their shares in the New Guayaquil
Land Company for equivalent shares in the
Ecuadorian Corporation.
THE FARMS COMPANY
On June 1, 1910 Harman and the G and Q
board of directors created the Farms Company
as a holding company to acquire title to all of
the lands owned by the railroad in Ecuador,
including the Recreo estate in Durán and the
properties purchased by the Anglo French
Pacic Syndicate in Quito in 1905. The Farms
Company was liquidated in 1922 and title to the
Quito and Duran properties were transferred to
La Inmobiliaria, another to another real estate
holding company real estate holding company
owned by the Ecuadorian Corporation.
THE ECUADOR EXPRESS
COMPANY
The Ecuador Express Company was organized
on May 1, 1909 to skim o the prot from the
freight carried by the railroad, leaving no money
to pay interest charges on the rst mortgage
bonds. The railroad was forced to liquidate the
Express Company due to the intense opposition
of the Ecuadorian government, which expected
the railroad to begin paying its fair share of
the interest on the bonded debt once the line
began operating between Duran and Quito (El
Comercio, 1911).
In 1910 the US State Department, upon request
from the Ecuadorian government, published a
list of the preferred and common stock holders
of the Guayaquil and Quito Railroad Company.
The original issue of $12,282,000 was divided
in 70,320 common shares and 52,500 preferred
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 209
shares.
The Inca Company appeared as the owner of
28,629 common shares and 20,331 preferred
shares, or a total of 48,960 shares of a par value
of $4,896,000, making the Inca Company the
largest single shareholder of the railroad. 149
of the 150 shares of the Inca Company were
the personal property of Archer Harman, thus
making Harman the owner of the majority of
the stock of the railroad. (National Archives
of the United States, Guayaquil and Quito
Railroad File 422.1t1G93/339). Unfortunately
for Harman, his stock would not pay interest or
dividends until the bonded debt of the railroad
had been cancelled.
DEATH OF ARCHER HARMAN,
1911
Ecuadorian opposition to Harman had been
building for years and came to a head after it was
revealed that he was involved in the negotiations
for the sale of the Galapagos islands to the United
States. According to Harman’s plan, a portion of
the proceeds from the sale were to be used to
pay o the bonded debt of the railroad. Archer
Harman left Ecuador for New York on April
17, 1911 to discuss the Ecuadorian opposition
to the railroad and to him personally with the
Department of State. In August, 1911 Harman
met with Henry L. Janes, the ocial in charge of
Latin American aairs at the Department.
Harman was presented with a letter from
Huntington Wilson, the Assistant Secretary of
State, which requested Harman’s immediate
resignation as president of the Guayaquil
and Quito Railroad and his promise never
return to Ecuador. Wilson stated to Harman
that “It appears essential that you withdraw
from all ocial connection with the railroad
company, which will satisfy the feelings of the
Ecuadorians” (Guayaquil and Quito Railway
File 422.11G93:346-352). Harman accepted the
decision of the State Department under protest
and never returned to Ecuador.
Archer Harman died on October 11, 1911 from
injuries suered from falling o his horse
while vacationing at the Virginia Hot Springs
with his daughter Kate. After Harman’s death
his Inca Company shares eventually passed to
Archer Harman Jr., the son of Archer’s brother
Major John Harman. On April 13, 1925 the Inca
Company sold 57,069 shares of a par value
of $5,706,900 (28,638 common and 28,431
preferred shares) to the Ecuadorian Government
for $600,000. With the sale of the Inca Company
stock, the Government of Ecuador became the
majority owner of the Guayaquil and Quito
Railroad and the Harman family interests in
Ecuador and the railroad came to an end.
PART TWO: E H NORTON
AND THE ECUADORIAN
CORPORATION: 1913-1961
Evermont Hope Norton was named president
of the railroad after the resignation of Archer
Harman. General Alfaro himself was forced to
resign as president on August 11, 1911. Later
in the year his supporters staged a revolt in an
attempt to return him to power. When the revolt
failed Alfaro was arrested and taken to Quito on
the same train that he had dedicated his life to
build. On January 28, 1912 he was assassinated
and his mutilated corpse dragged through the
streets of Quito and burned in the Ejido park in
the infamous hoguera bárbara.
The burning of Alfaro’s corpse was witnessed
by Norton at his residence in the Villa Floresta
on Avenida Colombia directly across from
the bonre. According to Norton’s grandson,
Presley Norton Yoder (Personal communication
November 1, 1989) the brutal death of Alfaro
and the opposition to Harman and the railroad
convinced Norton that the subsidiary companies
could best be protected by separating them from
the railroad and re-incorporating them under
the laws of Great Britain. On April 19, 1913,
Norton founded the Ecuadorian Corporation in
London as a holding company to take title to the
railroad’s subsidiary companies.
THE HISTORY OF THE ECUADORIAN CORPORATION AND ITS CONTRIBUTION
TO THE ECONOMIC DEVELOPMENT OF ECUADOR: 1897-1986
Número 19 / ABRIL, 2023 (19-37) 210
The corporation was capitalized at £1,000,000
pounds sterling, divided into £500,000
common shares and £500,000 in debenture
bonds, equivalent to $4,500,000 in US dollars
or S/.10,157,400 sucres at the going exchange
rate of S/.2.09 to the US dollar, making it the
largest corporation in Ecuador at the time. By
way of comparison, the two largest Ecuadorian
rms in 1913 were the Banco de Pichincha at
S/.1,000,000 and the Banco Comercial y Agrícola
in Guayaquil at S/. 5,000,000. (Compañía Guía
del Ecuador, 1909). In 1913 the total income of
the Ecuadorian government from customs duties
and internal taxes was S/.19,545,952. (Ayala,
1983).
According to the corporation’s prospectus, the
following subsidiaries were transferred to the
new holding company:
Table 3: Ecuadorian Corporation Prospectus,
abril 1913
Source: (The Guardian: abril 24, 1913:14).
Elaborated by the Author
The shares of the Ecuadorian Corporation were
divided among British, French and American
investors. The 64,156 French shares were
transferred by the French investors in the New
Guayaquil Land Company. The largest individual
investor was E H Norton with 81,576 shares
or 35% of the total capital of the Ecuadorian
Corporation.
Table 4: Distribution of Ecuadorian
Corporation Shares, 1913
Source: Shareholders Ecuadorian Corporation.
File: BT31/32153/128446. Elaborated by the
Author
When the prospectus of the corporation was
published in the press in Ecuador it was attacked
in a series of articles in the El Comercio
newspaper in Quito. The articles warned of
the danger that the Ecuadorian Corporation
“trust” posed and the fear that it would create
a monopoly which could devour Ecuadorian
owned businesses (El Comercio June 8, 1913).
ECUADORIAN CORPORATION
ACQUISITIONS, 1913-1938
Barely one month after publishing its prospectus,
the Ecuadorian Corporation purchased a two
thirds interest in the Fábrica de Hielo y Cerveza
(Ice and Beer Factory) from the Guayaquil
businessman Enrique Gallardo. The Ecuador
Breweries name would later be changed to la
Cervecería Nacional, the most protable of all
of the Ecuadorian Corporation’s subsidiaries.
(Personal Communication, Carlos Romo
Leroux, June 15, 1995).
With the outbreak of World War I in 1914
Ecuador’s cacao exports plummeted. The
recovery had just begun when the cacao diseases
witches broom and monilla attacked the cacao
plantations in 1919. By 1923 cacao production
had fallen 30% to 29,564 metric tons. By 1929
cacao production had fallen to 1890 levels,
where it stayed for the next 20 years. The eects
of the economic crisis sparked the 15th of
November 1922 strike of the railroad workers
and cacahueros (stevedores employed in
Guayaquil in the preparation of the cacao beans
for export), followed by the Revolución Juliana
of July 9, 1925.
The revolution, led by a group of young
military ocers from the highlands, oered as
an explantion for the coup the domination of
the Banco Comercial y Agrícola and the cacao
planter elite. When the bank was liquidated the
following year, the alliance between the planters,
the so-called gran cacao and the Guayaquil
bankers, the epoch of the pepa de oro had come
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 211
to an end. In the coming years the oligarcas del
cacao would be replaced by a new oligarchy of
sugar and banana planters.
The destruction of the plantations forced many
cacao planters into bankruptcy. During the
decade of the 1930s many of the planters were
forced to sell their properties to settle their debts
with the banks. One of the rst companies to
take advantage of the crisis of the cacao planters
was the Ecuadorian Corporation, that purchased
three properties in Milagro and Yaguachi: San
Miguel (1923), Panigón (1934) and part of the
old hacienda Naranjito named Supaypungo
(1938).
The name of Supaypungo was changed to Presley
Norton, the son of Evermont Hope Norton,
the principal stockholder in the Ecuadorian
Corpration. The 15,000 acre San Miguel
property, located on the outskirts of the city of
Milagro, was purchased from the Deutsch Cacao
Plantagen, whose principal stockholders were
the Seminario brothers. Included in the purchase
was the rice processing plant in Milagro.
The corporation developed the property as
a successful cattle ranch and rice growing
operation on lands that had once been one of
the largest cacao plantations in the country.
In the same year the Corporation purchased
an interest in the 75,000 acre Salango Island
property in the province of Manabi with the
purpose of cultivating hemp to manufacture the
canvas sacks used for the bagging of coee and
rice. The Salango acquisition was met with sti
resistance from the peasant farmers located on
the land and was eventually liquidated by the
corporation (Personal Communication, Carlos
Romo Leroux, June 16, 1995).
The hacienda Panigón, which bordered on
San Miguel, was purchased in 1934 from
Carmelina Ycaza Manzo and her husband Tito
Amador Baquerizo. Doña Carmelina and her
husband had mortgaged Panigón to the Banco
de Descuento for S/.180,000 in 1925. They took
out a second mortgage in 1934 for S/.300,000.
When they were unable to meet the payments to
the Banco de Descuento they sold Panigón to the
Agricultura Ecuatoriana, a subsidiary company
of the Ecuadorian Corporation.
In 1938 the corporation purchased Supaypungo
from Dolores Dorn y Alsúa, who had
inherited the hacienda in the partition of the
old Naranjito hacienda which had belonged to
Vicente Rocafuerte. The Corporation exploited
these properties until they were eventually
expropriated by IERAC (Instituto Ecuatoriano
de Reforma Agraria y Colonización). When
these properties were expropriated between
1966 and 1979 they totaled over 6,000 hectares
(Uggen 1993).
In 1934 the Ecuadorian Corporation purchased
the San Eduardo cement factory for S/.210,000
from José Rodríguez Bonín. The plant began
operations in 1924 but closed in 1929 due to
the economic crisis. According Carlos Romo
Leroux, Forrest Yoder negotiated a ten years
lease purchase agreement in 1934 and changed
the name of the plant to La Cemento Nacional
(Personal communication Carlos Romo Leroux,
June 14, 1995). The Corporation invested
heavily in expanding cement production and
from 1935-1956 was the sole producer of cement
in Ecuador until Cementos Chimborazo began
operations in 1956.
In 1938 the Ecuadorian Corporation made its
rst international acquisition when it purchased
a controlling interest in 2 million acres of
quebracho forest and grazing lands in Paraguay
from the International Products Corporation.
The quebracho forests were at the time the
principal source of tanin used in the tanning of
leather, which gave them a monopoly of tannin
extract produced in South America (Ecuadorian
Corporation Annual Report 1938).
LIQUIDATION OF SUBSIDIARY OF
THE ECUADORIAN CORPORATION
In 1946 the Ecuadorian Corporation liquidated
the Quito Tramways company as it was
no longer able to compete with bus and
automobile transportation in Quito. This
was followed the same year with the sale of
THE HISTORY OF THE ECUADORIAN CORPORATION AND ITS CONTRIBUTION
TO THE ECONOMIC DEVELOPMENT OF ECUADOR: 1897-1986
Número 19 / ABRIL, 2023 (19-37) 212
its Quito Electric Light and Power Company
to the Quito municipal power company for
S/.8,000,000 (El Comercio, October 19, 1946).
In 1956 the Corporation sold its 34½ % interest
in the International Products Corporation for
$1,100,000 to Pamela J. Woolworth of the
Woolworth Department store fortune (Miami
Herald, February 8, 1956).
PART THREE: NORTON STEVENS
TAKES CONTROL, 1962-1965
Evermont Hope Norton died on Tuesday evening
April 4, 1961 at Hopemont, his luxurious
residence on the Virginia peninsula. Upon his
death Norton’s favorite grandson Hope Norton
Stevens, was named to replace him as the head
of the Corporation. The following is a list of the
subsidiary companies owned by the Corporation
upon the death of E Hope Norton:
Table 5: Ecuadorian Corporation Subsidiary
Companies, 1961
Source: Ecuadorian Corporation Annual
Report, 1961. Elaborated by the Author.
According to Carlos Romo Leroux (Personal
communication, June 15, 1995), the triumph of
the Cuban Revolution in 1959 led the ocers of
the corporation, now renamed ECL Industries,
to assess the long-term future of the company
in Ecuador. The board of directors made the
fateful decision to invest in new businesses
in the United States, which was seen as a safe
haven should there be a Cuban style revolution
in Ecuador.
Over the next six years management
identied electronics and musical instrument
manufacturing as promising elds of
investment. In 1963 the corporation purchased
a controlling interest in four electronics rms.
In 1969 ECL Industries purchased a majority
of shares in the Chicago Musical Instrument
Company, at the time the largest manufacturer
of musical instruments in the United States and
the owner of several well-known instrument
brands, including Gibson Guitars. One of
Norton Stevens classmates in the Harvard
MBA program was Arnold Berlin, the son
and successor to Maurice Berlin, the founder
of the Chicago company. Shortly thereafter,
ESL Industries changed its name to Norlin, a
combination of Norton/Berlin, the name by
which it would be known at its nal liquidation
barely a decade and a half later (Uggen, 2010).
The acquisition of the Chicago company
increased the assets of Norlin by a staggering
250%, from $52,848,778 in 1968, the year prior
to the merger, to $130,663,013 a year later. The
decade of the 1970s saw a steady increase in the
company’s assets, which reached their all-time
high in 1979 of over a quarter a billion dollars.
But at the same time all was not well with the
company’s music subsidiary, which began to
show losses as early as 1975 due to the recession
in the United States and the subsequent drop
in consumer spending (Norlin Annual Report
1977).
The music unit, which made up 60% of the
company’s earnings in the rst half of the decade,
fell to a mere 15% at the end of the decade
(Norlin Annual Report 1976). The decline in
the music business was also an early sign of the
mistake the directors had made by abandoning
Ecuador for what they hoped would be greener
pastures in the United States.
The original mistake in abandoning Ecuador
was compounded in 1974 when the corporation
sold 51% of its ownership stake in La Cemento
Nacional to the Corporación Financiera
Nacional. According to Carlos Romo Leroux
(Personal communication, June 15, 1995)
Norlin decided to get out of the cement business
it lacked the capital to meet the expanding needs
John F. Uggen
CHAKIÑAN. Revista de Ciencias Sociales y Humanidades / ISSN 2550 - 6722 213
of the petroleum industry. In January of 1976 the
remaining 49% of the Cemento Nacional was
sold to the Swiss conglomerate Holder bank, the
world’s largest producer of cement.
In October, 1981 Norlin sold o its electronics
unit in an attempt to ward o a hostile takeover
by Camelia Investments, a British tea company
(Wall Street Journal, October 19, 1981). The
following year Norlin sold the Cervecería
Nacional to Bavaria, bringing to a close the
Ecuadorian Corporation’s seventy years of
protable operations in Ecuador. The sale of the
electronics and beverage units raised Norlin’s
cash balance to $64,341,000 at the end of 1982,
further enhancing the company’s attractiveness
as a target for a hostile takeover (Uggen, 2010).
Norlin became the target of a hostile takeover
for the second time in January of 1984 by the
Rooney Pace Group, which had purchased
47.6% of Norlin’s outstanding shares. On
September 6, Randolph K. Pace was named
chairman of the board and Norton Stevens
demoted to vice president of the company that he
and his grandfather E H Norton had controlled
for 70 years. Stevens resigned on March 5, 1985,
severing the nal link between the company and
Ecuador.
Under the management of the Rooney Pace
group Norlin barely survived a year and was
closed on March 10, 1986. To make matters
worse, Randolph Pace was charged with
securities fraud and would eventually serve time
in jail. On May 26, 1988 Patrick J. Rooney was
convicted of income tax evasion and served time
in jail as well. The remaining assets of Norlin,
renamed Ameriscribe Corporation, were bought
for $83 million by the international conglomerate
Pitney Bowes on April 23, 1993.
Although Norlin itself disappeared in 1985,
the businesses that were originally developed
by the Ecuadorian Corporation have continued
to thrive. In a survey conducted in 2002 by
the Ecuadorian business journal Gestión, the
National Cement Company, now owned by the
Swiss rm Holder bank and operating in Ecuador
under the name of Holcim, and the National
Beer Company, now wholly owned by the South
African rm of Saab/Miller, were both listed in
the top ten companies in Ecuador as measured
by both capital investment and prots (Gestión,
2002). When E Hope Norton died in 1961 the
Ecuadorian Corporation’s consolidated balance
sheet was
$14,861,066. By 1979, under his grandson
Norton Stevens, the corporation’s consolidated
balance sheet had grown to $238,426,000, a
spectacular 16 times the balance of 1961. The
following table 6, illustrates the spectacular
growth and decline of Norlin under the
management of Hope Norton Stevens:
Table 6: Norlin Consolidated Balance Sheet:
1962-1985
Source: Annual Reports Ecuadorian
Corporation. Elaborated by the Author.
One of the main causes of Norlin’s failure was
the 1973-1976 recession which was beyond
the control of both Norlin and Rooney Pace.
A further contributing factor was the plain
incompetence and dishonesty of the Rooney
Pace Group (Forbes, 1986). Another factor
that contributed to the ultimate failure of the
corporation was the changing membership of
the board of directors.
Under E. H. Norton the board was composed
of directors who had been with the corporation
from its inception. By the time Norton Stevens
came on the board in 1962 E. H. Norton had
already passed away and only Forrest Yoder of
the founding members was still on the board.
THE HISTORY OF THE ECUADORIAN CORPORATION AND ITS CONTRIBUTION
TO THE ECONOMIC DEVELOPMENT OF ECUADOR: 1897-1986
Número 19 / ABRIL, 2023 (19-37) 214
The only other senior member was George
Herbert Walker, Jr., the maternal uncle of
President George Herbert Walker Bush. Norton
Stevens replaced the old Ecuador hands by
Ivy League graduates with degrees from Yale
and Harvard with no previous experience in
Ecuador.
Although impossible to prove empirically,
perhaps the slow but steady growth of the
Ecuadorian Corporation under his grandfather
were not spectacular enough for a young Norton
Stevens fresh out of graduate school and armed
with an MBA degree from Harvard. But the root
cause of the demise of the Norlin Corporation
must be sought in the fateful decision of Norton
Stevens and his board of directors to sell o
their cement and beer business in Ecuador to
acquire new lines of business in electronics and
music in which they had no prior expertise. It
is ironic that one of the reasons for leaving
Ecuador was fear of being expropiated, while
in fact the real danger lay in New York city and
the sharks hunting for easy prey on Wall Street.
CONCLUSIONS
The Guayaquil and Quito Railway Company
and the Ecuadorian Corporation were the rst
modern business enterprises to be founded
in Ecuador. Their main contributions to the
economic development of Ecuador included:
the construction of the Guayaquil and Quito
Railroad, the establishment of Quito’s street
railway system, the urbanization of Quito’s
ciudadela Mariscal Sucre, the provision of
electricity to the city of 1908 to 1946, the
production of cement from 1935-1956, and the
manufacture and distribution of the popular
Pilsener beer.
The Corporation’s agribusiness subsidiaries
introduced scientic farming techniques on
the company’s cattle ranch and rice plantation
in Milagro. The Corporation also made a
signicant contribution to the capitalist
modernization of Ecuador in the establishment
of the holding company and the management
structure it adopted to administer the several
business units owned by the Corporation.
The completion of the Guayaquil and Quito
Railroad fullled Alfaro’s vision of the obra
redentora which would unify the country
under the banner of the liberal revolution.
The Ecuadorian Corporation contributed to
Alfaro’s vision by establishing the rst modern
business corporation which served as a model
for the great expansion in the number of
business enterprises which occurred with the
banana boom and the discovery of petroleum
in Ecuador’s oriente.
DECLARACIÓN DE CONFLICTOS DE
INTERESES: El autor declara no tener
conictos de interés.
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